annual report - middle east bank · 2017-01-02 · middle east bank, annual report for the year...

Middle E

ast Bank, A

nnual Report For the Year E

nded March 19, 2016

2016

Annual Report

For the Year Ended

March 19, 2016

Middle East Bank HeadquartersNo. 2, 5th St., Ahmad Qasir (Bokharest) Ave., Tehran, IranTel: (+98 21) 42178000 Fax: (+98 21) 88701095www.middleeastbank.ir [email protected]

Annual ReportFor the Year Ended March 19, 2016

In the Name of God

Financial HighlightsAll figures in IRR million except for EPS and CAR

20161 20152 20143 20134

Outstanding Loans 28,095,515 21,474,088 13,057,539 2,575,223 Deposits 34,416,163 24,914,454 14,422,913 1,141,668 Total Assets 41,381,718 30,717,191 21,252,583 5,590,608 Net Profit 1,360,802 848,516 820,029 408,081 EPS(IRR) 340 212 205 102 Guarantees 16,750,179 11,779,733 3,892,820 510,868 Letters of Credit 2,507,746 670,033 756,603 - Capital Adequacy Ratio (percentage) 18.01 20.96 30.53 105.19

1. Year ended March 19, 20162. Year ended March 20, 20153. Year ended March 20, 20144. Year ended March 20, 2013. Middle East Bank had only five months of operation in that year.

A Note on the Iranian Calendar Iran’s official calendar is a solar calendar that starts on the first day of spring and ends on the last of winter. The government of Iran as well as Iranian banks have adopted the calendar year as their fiscal year. This Annual Report is for fiscal year 1394, coinciding with calendar year 1394, that started on March 21, 2015 and ended on March 19, 2016.

A Note on the Exchange Rate of the Iranian Rial On March 19, 2016, the official exchange rate of the US dollar was: USD1 = IRR30,240.

Message from the Chairman This past year was a year in which negotiations between Iran and the group of six major world powers for the removal of international sanctions against our country concluded with the Joint Comprehensive Plan of Action (JCPOA) agreement. Hopes were high that JCPOA would result in the quick removal of all nuclear-related sanctions and the inflow of foreign direct investments. However, sanctions were proven to be tenacious, and in particular many of important banking sanctions remained in effect. International banks were hesitant to re-enter Iran and the Iranian banking system was not able to fully reconnect to the international banking network. In the past year, economic productivity was also slow to rise and a nearly 16 percent fall in investments did not help economic growth. At the same time the continuing drops in international oil prices exacerbated the existing financial crunch along with weak demand and installed additional barriers to economic growth. But inspite all these, we at Middle East Bank succeeded in continuing with our ongoing successful track record to once again prove that the real private sector of Iran is capable of performing well even in difficult circumstances. MEB’s attainment of its budget targets, including a profit of IRR1,360 billion, has given it new impetus to aim for even higher goals and better results in the current year and beyond. The Board of Directors has consistently aimed to adhere to the highest banking standards in the global best practice in banking, including periodical transparent reporting. In this vein, and in line with international standards, the Board has established specialized committees to enhance corporate governance and ensure the healthy operation of the Bank, thereby protecting the interests of all concerned parties. Such actions having received praise from the supervisory and overseeing bodies point to the fact that MEB is ready to be an active player in the global banking system in the post-JPCOA era. Along with other Board members, I am confident that with the cooperation of our committed team of experts and competent staff, MEB can meet and overcome all challenges that the future may hold.I am pleased to present this Report on MEB’s performance and operations during the past Iranian year that ended on March 19, 2016. I would like to take this opportunity to express my sincere appreciation to our dedicated staff, clients, shareholders and all other individuals and parties who have made the Bank’s successful track record possible.

Khosrow Nayebi AhranjaniChairman of the Board

Table of Contents

Chapter 1 Management Report 5

1. Shares and Shareholders 72. Corporate Governance 83. Operational Reports 11

Chapter 2 Review of Risks and Disclosure 15

1. Risk Department 172. Compliance Department 303. Internal Audit Management 334. Analysis of Financial Statements 345. Investments 39

Chapter 3 Survey of the Iranian Economy 41

1. Real Sector 442. Labor Market 483. Sanctions 504. Government Budget 505. Balance of Payments 546. Foreign Exchange Market 557. Monetary Policy 578. Prices 609. Capital Market 63

10. Business Environment 65

Chapter 4 Report of Independent Auditor and Financial Statements 67

Chapter 1

Management Report

MANAGEMENT REPORT 7

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Middle East Bank (MEB) operates primarily as a corporate bank, providing financing and investment solutions to its corporate clients, high net-worth individuals and high income earners. Its range of banking and financial products and services are tailor-made to the needs of various business sectors and private

clients. From the beginning of its operation in 2012, MEB has pioneered a new standard in transparency and service quality in Iran, and leveraging on its preeminent position in banking technology, it has delivered professional banking services to its clients at their offices and homes.

1 - Shares and ShareholdersAs of March 19, 2016, MEB had a total of 2,720 shareholders. The composition and percentage of shares held by individuals

and corporations holding more than one percent of the total shares are as follow:

Composition of ShareholdersClassification of Shareholders No. of Shareholders No. of Shares Percentage of Shares

Corporate Investors with more than 1 percent 9 713,180,124 18Individual Investors with more than 1 percent 11 798,820,666 20Others 2,700 2,487,999,210 62Total 2,720 4,000,000,000 100

Share Prices and Transactions

Year End No. of Shares Traded Value of Shares Traded (IRR million)

No. of Trading

Days

Market Value(IRR million)

Share Priceat Year End

(IRR)

Capital(IRR million)

1392 825,040,266 1,126,627 221 10,272,000 2,568 4,000,0001393 409,085,657 842,589 229 7,776,000 1,944 4,000,0001394 843,689,780 2,415,505 229 12,328,000 3,082 4,000,000

*Of the total transaction value in the year that ended on 03/20/2013, 1,934,509 shares with the value of IRR1,934,509 million were for the subscription of initial offering.

Information on shares at year ends during the past three years are presented in the table below:

(IRR)

MEB Share Prices in 1394 (March 21, 2015 - March 19, 2016)

1 2 3 4 5 6 7 8 9 10 11 12

MIDDLE EAST BANK ANNUAL REPORT8

Khosrow Nayebi-Ahranjani (4)ChairmanM.Sc. Accounting, NIOC’s Advanced Institute for Accounting

Hossein Salimi (2)Vice-ChairmanM.Sc. Agricultural Engineering, Utah State University-Logan, USA

Parviz Aghili-Kermani (3)Board MemberPh.D. Finance, University of Wisconsin-Madison, USA MBA, University of Wisconsin, Madison, USA

Amir Dadkhah (5)Board MemberB.Sc. Mechanical Engineering, AmirKabir (Polytechnic) University

Parviz Khakpour (1)Board MemberM.Sc. Architecture and Urban Planning, Shahid Beheshti University

Rouzbeh Pirouz (6)Board MemberM.Sc. International Relations, Harvard University, USA

Reza Soltanzadeh (7)Board MemberM.D., Manipal University, India EMBA, University of California Los Angeles (UCLA), USA

Javad JavadiAlternate MemberM.Sc. Financial Management, Shahid Beheshti UniversityB.Sc. Business Administration, Tehran University

Majid Safarian Alternate MemberB.Sc. Accounting, Shahid Beheshti University

Executive CommitteeMEB has set up an Executive Committee in accordance with Article 81 of the Bank’s Articles of Association and the fourth principle of the Basel Corporate Governance Principles. It consists of the Managing Director (MD), the Deputy MD,

an MD Adviser and five Assistant MDs. The authorities and obligations of the Executive Committee are set by the Board of Directors. The current members’ names and brief educational backgrounds are as follow.

1 2 3 4 5 6 7

2. Corporate GovernanceMEB has fully embraced the principles of corporate governance. Conscious of the importance of the full implementation of corporate governance and aware of international standards in this regard, MEB Board of Directors has set detailed policies to fully operationalize various aspects of corporate governance.

MEB managers realize that it is only through the regular monitoring of adherence to corporate governance at all levels that it can ensure the healthy operation of the Bank and also safeguard the interests of all interested parties.

2.1. Board of DirectorsMEB was managed by a nine-member Board of Directors up to October 7, 2015, when the General Assembly decided on a seven-member Board and also elected two alternate members.

The current members and alternate members, along with their educational backgrounds, are as follow.

Board Members and Alternate Members

MANAGEMENT REPORT 9

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Parviz Aghili-KermaniManaging DirectorPh.D. Finance, University of Wisconsin - Madison, USA MBA, University of Wisconsin, Madison, USA

Javad JavadiDeputy Managing DirectorM.Sc. Financial Management, Shahid Beheshti UniversityB.Sc. Business Administration, Tehran University

Mohammad-Taghi JamalianAdvisor to the Managing DirectorB.Sc. Economics, Shiraz University

Dara BoushehriAssistant Managing Director, Credit DivisionEMBA, American University of Sharjah, UAEB.Sc. Electrical Engineering, Sharif University

Alireza EdalatAssistant Managing Director, International DivisionB.Sc. Accounting, Advanced Institute for Accounting, Tehran

Mehdi NedjatiAssistant Managing Director, Systems Development and IT DivisionPh.D. Computer Sciences, University College London, UKM.Sc. Computer Science, Staffordshire University, UKB.Sc. Computer Science, University of Hertfordshire, UK

Majid NourmohammadiAssistant Managing Director, Finance DivisionM.Sc. Financial Management, University of Tehran

Majid Safarian Assistant Managing Director, Logistics and Branch Affairs DivisionB.Sc. Accounting, Shahid Beheshti University

Advisors and Senior ManagersThe Executive Committee has conferred some of its authorities to senior managers who have been selected from the ranks of top experts in their respective fields. The list of senior managers along with their educational backgrounds is as follow.

Azadeh Ahmadi-KoushaSenior Manager, Finance DepartmentB.Sc. Accounting, Azad University, Tehran

Hossein AstanehaChief, Credit Operations OfficeM.Sc. Accounting, NIOC’s Advanced Institute for AccountingB.Sc. Electrical and Electronic Engineering, Sharif University of Technology

Rana Bani-HabibSenior Manager, International DepartmentM.Sc. Banking Management, Iran Banking Institute, TehranB.Sc. Accounting, Allameh Tabatabai University

Morteza BinaSenior Manager, Risk Management DepartmentPh.D. Signal Processing Engineering, Compiegne University of Technology, FranceM.Sc. Business Management, Rice University, Texas, USAB.Sc. Electrical Engineering, Sharif University

Mohammad-Ali DehghaniSenior Manager, Credit Department 1M.Sc. Banking Management, Iran Banking Institute, TehranB.Sc. Public Administration, Tehran University

Mahin HanifehSenior Manager Credit Department 3M.Sc. Banking Accounting, Iran Banking Institute, TehranB.Sc. Accounting, Shahid Beheshti University

Gholamreza HassanalizadehActing Senior Manager, Legal DepartmentB.A. Law, Azad University, Tabriz

Shokouh HosseinabadiAdvisor to MD on Anti Money Laundering and Compliance Ph.D. International Trade Law, Kings College, London, UKM.Sc. International Business Law, City University, London, UKM.Sc. International Business Law, Shahid Beheshti UniversityB.Sc. Law, Shahid Beheshti University

Mohsen KarimiSenior Manager, Communication DepartmentM.A. Social Communications, Azad University, Tehran

Mohammad KeshtehgarSenior Manager, Organization and Procedures DepartmentM.Sc. Socio-Economic Systems Engineering, Azad University, TehranB.A. Applied Mathematics, Teacher Training University, Tehran

Ali Khalili-SadatlooAdvisor to the Managing Director, Legal DepartmentB.A. Law, University of Tehran

Laleh MehradpaySenior Manager, Information TechnologyM.Sc. Socio-Economic Systems Engineering, Mazandaran University of Science and TechnologyB.A. Applied Mathematics, Amirkabir University of Technology, Tehran

Ehsan RahmaniniaSenior Manager, Inspection and Internal Audit DepartmentPh.D. Candidate, Accounting, Azad University, TehranM.Sc. Accounting, Azad University, TehranB.Sc. Accounting, Economic Affairs & Finance University, Tehran

Farzaneh Rajaei-SalmasiSenior Manager, Compliance and Anti Money Laundering Department M.Sc. Computer Engineering, Sharif University of TechnologyB.Sc. Computer Science, Amirkabir University

Ehsan Sheikh-TaheriSenior Manager, Logistics DepartmentB.Sc. Industrial Engineering, Azad University

Hedieh Tabrizi Senior Manager, Credit Department 2B.A. English Translation, Azad University, Tehran

Hossein Tayefeh-MahmoudiSenior Manager, Human Capital DepartmentM.A. Education, Tehran UniversityB.A. Psychology, Tehran University


2.3 - Specialized CommitteesIn accordance with recommendations of the Basel Committee on Banking Supervision, MEB’s Board of Directors has established the following specialized committees in order to better focus on specific areas.

Risk CommitteeThe Risk Committee is composed of three Board members, including the MD, an MD Advisor, and the senior manager of the Risk Department. This Committee is charged with identifying, measuring, monitoring and ultimately determining ways of minimizing various risks to the Bank. It also ascertains the Bank’s compliance with the rules and regulations of the Central Bank of Iran as well as international banking standards such as those set by Basel-III. This Committee is required to periodically report to the Board of Directors.

Compliance CommitteeThe Compliance Committee consists of the Chairman and a member of the Board of Directors, the MD, an MD Advisor, and the senior manager of the Compliance Department who acts as the Committee’s secretary. The main duty of this Committee is defining policies for identifying, assessing, controlling and monitoring compliance risks, and deciding on matters related to compliance risks such as non-conformity of the Bank’s operations with domestic and international rules and regulations

Internal Audit CommitteeThe Internal Audit Committee has been set up in line with the requirements of the Tehran Stock Exchange and its charter has

been ratified by the Board of Directors, and is composed of three members of the Board of Directors and an MD Advisor. This Committee assists the Board of Directors in its supervision of financial reports, corporate governance, internal controls, internal audit and independent auditors’ procedures and the Bank’s ethical code of conduct. The Committee aims to ensure (i) Effectiveness of strategy, risk management and internal control procedures; (ii) Acceptability of financial statements, procedures for financial reporting, accounting system and financial monitoring; (iii) Setting up, maintaining and support of the internal control unit; (iv) Independence, professional competence and quality of internal control and independent auditors; and (v) Compliance with all laws, regulations, monitoring requirements and Bank’s own policies, including those relating to the ethical code of conduct.

Other CommitteesOther committees include Supervision and Collection of Loans and Receivables Committee, Property and Procurement Committee, Strategy Committee, Product Development Strategy Committee, IT Committee, Human Resources and Compensation Committee, Marketing and Public Relations Committee, Clients’ Grievances Committee, Credit Committees (at the three levels of Superior, Central and Branch) and Overdue Loans Follow-Up Committee. Membership of each committee includes at least one member of the Board of Directors. Information on various committees, including their membership and the number of meetings held in the year under review is presented in the next table.

Organizational Chart

MANAGEMENT REPORT 11

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Specialized Committees: Membership and Number of Meetings in 1394

Committees

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1. Risk 4 2

2. Audit 4 12

3. Compliance 3 2

4. High Credit 6 95

5. Assets and Liabilities Management 5 0*

6. Past-Due Loans Fllow up 3 46

7. Complaints 3 2

8. Product Development and IT 4 0*

9. Central Credit 3 92

10. HR and Compensation 3 6

11. Marketing and Public Relation 5 8

12. Property 3 11Total 4 5 3 2 3 2 3 5 4 7 2 1 3 2

* Although formal meetings were not held in 1394, there were routine meetings between Managing Director and Assistant Managing Directors for development of new products and assets and liabilities management of the Bank throughout the year.

2.3 - Corporate Governance DepartmentsIn order to implement Corporate Governance more effectively and efficiently, MEB has established Risk, Compliance,

and Internal Audit Departments whose responsibilities are elaborated in the next chapter.

2.4 - Disclosure and TransparencyIn accordance with circular number MB/1172 of the Central Bank of Iran, and in line with Article XII of the Basel Corporate Governance Principles, MEB publishes details of its policies

on disclosure and transparency on its website. Details on the operations and transparency of financial and non-financial issues are presented in the next chapter.

3. Operational Reports

3.1 - Human Capital DepartmentDuring the year under review, MEB recruited 79 new staff while 35 of the existing staff left the Bank for various reasons. At the

end of the year, employees numbered 326 and their age, gender, education and posting compositions were as exhibited below.

21-30 31-40 41-50 Above 51

Male Female

Composition of Human Capitalby Age

Composition of Human Capitalby Gender

47% 50% 50%39%

5%9%


Branch Headquarter

High School Diploma College Certificate Bachelor Degree Master Degree Ph.D.

Composition of Human Capitalby Education

Composition of Human Capitalby Posting

Major ActivitiesHuman Capital Department’s activities in the year on the review included:• Conducting 111 training programs for employees;• Developing and equipping online virtual class and holding

3 training programs on Accounting; Money, Banking and Financial Markets; and Anti Money Laundering for branches and head office employees;

• Conducting educational program on International Financial Reporting Standards (IFRS) for Finance Department, Internal-Audit Department, and the Bank’s subsidiaries in collaboration with Professional Accountants Center for Training (PACT);

• Conducting training programs for branch employees;• Conducting workshops for International Banking, Foreign

Currency, and Letters of Credit for International Department’s new employees;

• Conducting Trade Finance for Credit Department’s employees;

• Conducting behavioral empowerment program based on DISC model for 21 of managers and employees;

• Conducting the first phase of English language courses for branches and head office employees;

• Arranging for 3 of MEB executive managers to attend EMBA program held by IBS institute in cooperation with Alto University of Finland;

• Conducting training program on “Compliance” and “Calculation of Capital Adequacy and Liquidity under Basel-III” for other banks’ managers and experts

3.2 - International DivisionThe International Division was active in making MEB the premier bank in all aspects of trade finance. In this pursuit it established correspondent banking relationships with numerous banks in countries including Italy, Germany, France,

Switzerland and Russia. This has strengthened MEB’s financial structure and has placed it in a position to deliver various trade finance services. The performance of the International Division in various categories is presented in the table below.

3.3 - Project Finance DepartmentThe Project Finance Department was established in the second half of the year under review with the aim of increasing MEB’s non-interest income through medium- and long-term financing services. The range of advisory and financing services of this Department includes (i) Granting foreign exchange facilities to export-oriented projects from the resources of the National Development Fund of Iran (NDF); (ii) Offering syndication loans; (iii) Structuring and executing project finance through the use of various financial instruments based on debt and equity; (iv) Assisting in the financing of real estate development projects by setting up trust accounts; and (v) Providing M&A

advisory, valuation and restructuring services.As a wholesale bank that pays particular attention to the health of the more efficient domestic firms, responding to their capital needs is of special importance to the Bank. Consequently, the Project Finance Department has been very active in financing export-oriented projects, mostly with funds made available by the NDF. Once a project is presented to this Department, it examines it and provided that the project passes its comprehensive economic, financial and technical feasibility analyses, and also provided that it conforms to NDF’s standards and rules and regulations, it recommends the project to the

48%52%55%

5%

37%

2% 1%

Year ended March 19, 2016 Year ended March 20, 2015 Activity Growth Rate

(IRR million) (IRR million) (percentage point)

L/Cs Issued -FX 7,992,221 3,526,117 127L/Cs Issued -IRR 432,628 131,219 230Remittances Inward & Outward 7,738,751 4,383,915 77Refinance Loans 2,374,131 - -Mosharekat Madani Loans (Civil Partnership Contracts) 731,064 - -Joaleh Loans - 21,863 -Issued Bank Guarantee & Counter Guarantee 1,974,815 1,503,346 31

MANAGEMENT REPORT 13

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NDF for financing. During the year under review, MEB has recommended to NDF projects worth over a hundred million USD and has received funding for most of them.This Department also offers Loan syndication services. A syndicated loan agreement simplifies the borrowing process by allowing the borrower to use one agreement that covers a group of banks and different types of facilities rather than entering into a series of separate bilateral agreements with varying terms and conditions. Syndicated loans are usually entered into where the requested funds exceed a single bank’s lending limits and/or risk tolerance. Another service provided by this Department is assisting companies to better utilize facilities available in the capital

and money markets. In order to facilitate project financing and working capital through the heavily underutilized capita market, MEB provides guarantees to issuers and also assists companies to minimize their costs of financing through that market. In regards to capital securities and services, this Department offers products such as trust accounts to help builders and developers reduce their financing costs and win the confidence of their buyers.Finally, MEB believes that providing in-depth advisory services plays a critical role in the improvement of corporations’ capital and financial structures. In that vein this Department strives to better understand its corporate clients’ needs so as to provide them with the state of the art financial services.

3.4 - Information Technology DivisionMEB’s proprietary core banking system was implemented in September 2014 and new features have been added to it since in order to accommodate new internal requirements and demands by the Central Bank. New features that were added to the system during the year under review include:• The execution of Anti Money Laundry (AML) system;• The execution of CHAKAVAK system related to bank checks;• The execution of mobility branch system with security

considerations;• The execution of credits work flow management, risk and

compliance system;• The execution of sanction lists and black list;• The execution of Rials SEPAM guarantee;• The execution of IBAN and governance accounts inquiry;• The execution of virtual card;• The execution of mobile banking system;• Doing some changes for upgrading switch from the version 5 to 7;

• The execution of Mobile one time password (OTP) for both android and IOS operation systems;

• The implementation of opening term deposit accounts in internet banking;

• The execution of PINPAD;• The execution of helpdesk group 24 hours for customers;• The creation of reports’ dashboard that consists of the status

of account, banking products, the performance of branches, financial report and credit department;

• The creation of 100 reports related to business intelligence (BI);

• The designing and implementation of information security management system (ISMS); and

• The execution of secondary datacenter and the movement of hardware’s and networks’ equipment from the datacenter of contractor to the MEB’s secondary datacenter.

Chapter 2 Review of Risks and Disclosure

REVIEW OF RISKS AND DISCLOSURE 17

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Risk management, compliance and internal audit as the three pillars of corporate governance assist the board of directors in performing its duties more accurately, with more awareness of the risks that might be imposed on it and the Bank. In order to

explore their functions, the three departments are introduced below. Furthermore, the last two sections of this chapter are designed to further disclose and provide transparency particularly in terms of financial status of the Bank.

1. Risk Management

Middle East Bank continued building and enhancing its information technology infrastructures for risk management. In light of MEB’s commitment to implementing Basel-III accord, we further developed our internal rules and procedures for Internal Capital Adequacy Assessment Process (ICAAP). We expect to have a complete set of internal rules and regulations approved and signed by the Board of Directors by the fall of 2016.Central Bank of Iran (CBI) has taken major steps bringing the Iranian banking regulations in line with the latest Basel accords and International Financial Reporting Standards (IFRS). The CBI has emphasized implementation of IFRS particularly for matters related to disclosures and market discipline for

the current reporting period (Year ended March 19, 2016); however matters related to fair valuations are to be introduced for the next reporting period; i.e. Year ended March 20, 2017. Although CBI has not yet issued guidance on capital adequacy and liquidity ratios conforming to Basel-II or Basel-III accords, we report these ratios according to the latest guidance from Basel Committee on Banking Supervision “Basel-III” documents in addition to current CBI rules. It should be noted that recently CBI issued preliminary recommendations for the implementation of Basel-II standardized model for the calculation of capital adequacy ratio; and, has sought comments from banks for a final decision yet to be made. The Table 1 illustrates some highlights of MEB’s risk profile.

Table 1- Risk HighlightsSelect Risk Ratios as of March 19, 2016 PercentageDoubtful loans /Total Loans 0.6Capital Adequacy Ratio Basel-III Foundation-IRB 12.8Capital Adequacy Ratio Basel-III Standardized Approach 12.5Liquidity Coverage Ratio (LCR) 77.1Net Stable Funding Ratio (NSFR) 134.8Liquid Assets1 /Total Assets 10.7(Liquid Assets + Regulatory Deposits)/Total Assets 18.2Loans / Total Assets 67.5Loans / Deposits 81.3

1. Cash & Cash Equivalent + Unencumbered due from other Banks+ Guaranteed Bonds + Short - term liquid investments


Table 3 - Assets CompositionEach Item as a Percentage of Total Assets

Asset Type March 19, 2016 March 20, 2015Liquid Assets1 10.7 8.8Regulatory Deposits with CBI 7.5 9.4Long term and strategic investments 1.4 0.8Loans 67.5 69.7Tangibles, Intangibles, Receivables, and others 10.4 11.3Encumbered Assets with CBI 2.5 -Total 100.0 100.0

1. Cash & Cash Equivalent + Unencumbered due from other Banks+ Guaranteed Bonds + Short - term liquid investments

Also, on the asset side, MEB’s short-term investments in equity stock market constitute 1.2 percent of total assets. MEB plans to reduce even further the short-term equity investments considering the low Sharpe Ratio and the very high risk weight associated with these assets. Our estimate of risk weight for our short-term investments is about 304 percent. For these short-term investments, the standardized Basel-III risk weight is 300 percent. These risk weights are to be contrasted with the Basel-I risk weight of 100 percent for short-term stock market investments. These high risk weights impose a policy of minimal and prudent short-term stock market investments. The overall asset side strategy of MEB is reflected in its strong capital ratios as depicted in the section “Capital Conservation Strategy”.

As of March 19, 2016, MEB’s Long-term and strategic investments (Dadeh Pardazan Simaye Aftab, MEB Brokerage Co., Kardan Investment Bank, MEB Currency Exchange) were 1.4 percent of total assets and were used for facilitating the financial needs of our customers. These investments include a brokerage house, an FX trade company and an investment bank, and an information technology company used for development of MEB’s core banking and related IT products. Considering the current economic situation, MEB adopts a conservative liquidity strategy and maintains 18.2 percent of its total assets in very liquid assets plus regulatory reserves. Customers’ loan portfolio constitutes 67.5 percent of total assets; while 10.4 percent of total assets are tangibles, intangibles, recievables and other assets supporting the core activities of the Bank.

The risk profile of our on balance sheet assets is such that considering an average risk weight of 107 percent for our loans, the average risk weight of our on balance sheet assets is about 92 percent. This results in MEB having a relatively high Capital Adequacy Ratio of 12.8 percent. Despite a relatively high CAR, we have stayed one of the most profitable banks in Iran. MEB’s profitability can be attributed to an efficient work force, lower cost of capital and high regulatory interest rate for loans. MEB has a lower cost of capital because relatively large section of our

deposits consists of our customers’ current account deposits.

1.1.2 - Liability side strategyWe do not rely on large number of branches for expanding our financial resources. Instead, we rely on our business borrowers to bring their banking activities and financial resources to the bank. Essentially with this strategy we work as an intermediary to help our clients with occasional excess resources to finance our other clients with occasional short-term working capital

Table 2 – Loans’ StatusEach Item as a Percentage of Total Loans

Loan Class March 19, 2016 March 20, 2015Standard 95.6 98.3Overdue (Late between 60 days and 6 months) 3.7 1.1Suspended (Late between 6 months and 18 months) 0.1 0.6Doubtful (Late more than 18 months) 0.6 0.0Total 100.0 100.0

1.1 - Risk Management Strategy1.1.1 - Asset side strategy

MEB defines itself as a corporate bank, providing financing services to ongoing businesses for their working capital needs. Our loans mostly cover short term needs of our customers, usually payable in three months and reusable up to one year. Longer period financing or project finance is only done when the viability of the project passes credit committee’s stringent requirement and funding is provided by the National Development Fund (NDF) against our guarantee. Larger projects may also be handled, but against guarantee of a syndicate of banks. MEB’s strategy is to minimize market risks related to equity share holdings and so engages 1.2 percent of its assets in a diversified marketable equity securities portfolio. We carried on our strategy of lending short-term loans to select corporate clients with whom we had developed and maintained strong long-term banking relationships. Our loan portfolio

constitutes about 68 percent of total assets and consists mostly of working capital financing (receivables and inventory purchases) of our corporate clients and individuals who run their businesses as proprietorship. MEB’s credit rating and credit extension is based on our assessment of the borrowers’ ability to generate the required cash flows, in addition to borrower’s ability to pay back the interest and principal at maturity of their loans; mostly in three months. This strategy has allowed the bank to maintain a ratio of doubtful loans to total loans of less than 1 percent, well below the 12 percent stated national average of doubtful loans as reported by CBI. The ratio of non-performing loans (more than 60 days late) to total loans is about 4.4 percent at MEB. The national average for loans 60 days past due was not available at the time of writing this report, however, one can expect a much higher figure than the nationwide doubtful loans of 12 percent.


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Table 4 - Composition of LiabilitiesEach Item as a Percentage of Total Liabilities

Items March 19, 2016 March 20, 2015Current account deposits 14.8 10.9Short term deposits 44.2 36.3Long term deposits 37.7 50.0Due to other banks 0.2 0.1Due to CBI 1.1 0.9Other liabilities 2.0 1.8Total 100.0 100.0

1.1.3 - Capital Conservation Strategy

Considering the current economic situation, MEB continues to maintain high liquidity and more capital than regulatory requirements. Despite higher than required liquidity and capital ratios, MEB has been able to stay one of the most profitable banks in the country for the reasons explained in the “Asset side strategy” of this report. The result of capital conservation

strategy is depicted in the following table where several Capital Adequacy Ratios are estimated based on different models.MEB reports its capital adequacy ratio (CAR) based on several models: Basel-I, Basel-III Foundational Internal Rating and Basel-III Standardized Approach. Also, for March 19, 2016, MEB reports its CAR based on 2014 Basel-III Revised Standardized Approach for comparison with previous year March 20, 2015.

Table 5 - Capital Adequacy RatiosCapital Adequacy Ratio Percentage

CAR Approaches and Stress Scenarios March 19, 2016 March 20, 2015Tier1 only Tier 1 + Tier 2 Tier1 only Tier 1 + Tier 2

CAR according to Basel-I (required by CBI and displayed here for comparison) 16.8 18.0 19.7 20.9

CAR according to IRB-Foundation1 11.9 12.8 13.0 13.8CAR according to Basel III Standardized Approach (Loans risk weight and off balance sheet risk weights = 100%) 11.6 12.5 12.7 13.5

CAR according to “Revised Standardized Approach2 10.2 11.0 12.1 12.9Stress Test scenario 2 (less severe)3 9.0 9.9

Not AvailableStress Test scenario 3 (more severe)3 7.3 8.1Stress Test scenario 4 (most severe)3 5.9 6.7

1. This is also the base case scenario for scenario 1 of stress testing. Off-balance sheet items are risk weighted at 70% in contrast to 100% of Standardized Approach, hence the higher CAR compared to Standardized Approach. Loans risk weight in 2016= 106.8%, Off balance sheet risk weights in 2016 = 70%2. Loans risk weight, and off balance sheet risk weights in 2016 = 118%3. Please refer to the section 1.5 “Stress Testing”

1.2 - Risk Management StructureRisk Management in MEB consists of Risk Committee (RC) and Risk Department. The duties of the RC are modeled based on the Basel document entitled “Guidelines - Corporate governance principles for banks”, issued in October 2014. The RC consists of five Board members and the head of Risk Department (or Senior Risk Manager - SRM). SRM is responsible for reporting risk related matters to RC, discussing relevant information

with members of the RC/Board members, as well as executing various resolutions of RC. Risk Department operates under the guidance of Risk Committee (RC) and carries the policies set forth by the RC. The Risk Department is headed by the SRM and employs four additional risk analysts. The risk analysts and SRM share the duties of credit risk modeling, credit risk rating and liquidity

needs. We also rely on the high quality of our services to attract senior managers, owners and major customers of our clients (borrowers) to do their banking with us. We also attract high net worth individuals (HNWI) and business owners/managers and high income earners (HIE) because of the high quality of our services and the good reputation established among the business leaders. Majority of the deposits and funds provided by the HNWI and HIEs are related to our corporate clients. MEB’s depositors have stayed loyal despite the fact that higher deposit rates were available at other banks. During much of this reporting period there was an unusual situation where the interbank overnight rates were higher than regulatory deposits

interest rate. MEB was generally a provider of funds in the interbank market which provided a window of opportunity to profit from the high interbank rates and low deposits rates. The reason for unusual high interbank rates was that CBI imposed a high interest rate penalty on banks with deficiencies in their statutory reserves. This high penalty interest rate pushed interbank loans to levels higher than regulatory fixed interest rates offered on the ceiling set on term deposits. This situation also forced some banks with deficient reserves to offer deposit interest rates higher than CBI regulatory deposit rates to avoid the much higher penalty for deficiency in statutory reserves.


Table 6 - Loans Internal RatingLoans Internal Ratings as of March 19, 2016

Internal Rating Risk Weight (Percentage) Each Item a Percentage of Total Loans AAA 4 0.0AA 14 3.7A 34 7.4A- 42 2.3BBB+ 50 4.2BBB 60 3.9BBB- 70 3.4BB+ 80 3.3BB 92 3.5BB- 102 3.0B+ 112 2.5B 122 6.9B- 129 4.5CCC+ 137 3.3CCC 144 9.6CCC- 150 2.9CC,C 250 6.9Corporates and SMEs not rated 100 13.9Natural person borrowers not rated 100 10.4Overdue 150 3.7Suspended 150 0.1Doubtful - 0.6Average Risk Weight 106.8 100.0

risk measurements. Because of the regulatory fixing of lending and deposits interest rates and an almost flat effective yield curve, interest rate risk comprised a non-significant portion of overall risks of MEB. A sensitivity analysis did not reveal a major impact on MEB’s profitability ratios from a significant regulatory change in interest rates. However, regulatory risks remain where MEB may face loss of funds in case MEB abides by the CBI rules on fixed interest rates and other banks deviate significantly from CBI rules. The equity stock portfolio of the bank is relatively small, however, it is regularly monitored and the relevant risk measurements such as VaR and concentration are reported. Foreign exchange rate risk in MEB arises from the off-balance sheet commitments related to imports of goods. MEB engages

only with clients who are not listed as a sanctioned entity and whose activities are allowed according to the imposed international sanctions. The foreign exchange commitments required direct dealing with CBI where the exchange rates were both guaranteed and allowed by CBI. MEB did not engage in direct market related foreign exchange activities or hedging. With expected increase in international activities following the implementation of JCPOA, the foreign exchange risk is expected to increase for future reporting periods albeit such risk is always passed on to the importers or exporters. The Board assures independence of the risk function from other business activities of the bank. The Senior Risk Manager leads the implementation of a rigorous ICAAP in MEB which is expected to be finalized by the fall of 2016.

1.3 - The Bank’s Risks

1.3.1 - Credit RiskMEB’s credit extension policies ensure CBI’s rules and regulations are properly implemented. MEB’s primary credit clients are incorporated entities with whom MEB develops and maintains strong long-term banking relationships. However, natural persons who manage their business activities personally and are not under a legal umbrella are welcomed and treated as proprietorships. Obviously in such cases, Chamber of Commerce registration and a proper tax code are necessities prior to extension of any facilities. Concentration of MEB’s credit is in short-term requirements of its clients; namely inventory and receivable financing. Even international activities are limited to the importation of raw materials, spare parts and finished consumer goods. MEB occasionally arranges and participates in syndicated guarantee facilities when funding is provided through the capital market or State financed, National Development Fund.The Risk Department assigns credit risk rates to non-financial

incorporated clients based on their audited financial statements, past payment history, competitive position in the market, management quality and other qualitative information. Risk Department’s assessment, among others, is based on a client’s ability to generate the required cash flows for short-term financing of receivables and or inventories. All incorporated non-financial clients are independently evaluated by the Risk Department and are given an internal credit rate. Credit Department performs its own evaluation before submitting client information for risk rating. It is MEB’s risk policy to maintain an average credit risk rate of B+ or better. Collaterals as well as “supplementary collaterals” are used to augment the credit quality of clients with credit rates in the lower ranges.

Credit Risk DistributionsWe provide several tables describing quality measures of credit portfolio, including internal rating, late payment behavior, and concentrations.


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The above table shows the credit quality of loans based on internal rating and the associated risk weights used for capital adequacy ratio calculations based on Basel-II IRB-Foundation Approach. In this approach the Loss Given Default is set to the Basel-III standardized value of 45 percent. The overall IRB-Foundation risk weight of loan portfolio for the March

19, 2016 is calculated to be 106.8 percent. The overall IRB-Foundation risk weight of loan portfolio for the March 20, 2015 was calculated to be 105.6 percent. The following graph shows the contribution of each credit rate in the overall risk weight of loans.

Credit Risk– Borrowers payment behavior distributionRisk department monitors and measures the payment behavior of its clients. These measurements help the risk department to

improve its internal rating model. In the following table, the past payment behavior of current customers with outstanding loans are reported.

Figure 1 - Risk-Weighted Distribution

Table 7 - Credit Risk– Borrowers Payment Behavior DistributionEach Item as a Percentage of Total Loans

Customer categorization based on days late 1 March 19, 2016Customers with only payments after the year ended 2 6.9Excellent 3 43.9Good3 10.0Average3 25.2Below average3 6.1Unsatisfactory (however current)3 3.5All current customers 95.6 Late between 60 days and 6 months 3.7 Late between 6 months and 18 months 0.1 Late more than 18 months 0.6Non-current customers 4.4All customers 100.0

1. The past payment behavior of clients with outstanding and current loans is evaluated and categorized according to a measure similar to standard deviation of days clients have been late. 2. First time customers who were current and had no previous payments recorded (all their payments were due in a future date after the year ended)3. Quality of payment behavior is according to the below table:

Quality of Payment Behavior for Customers Current on Loans Risk Dept. Measure of Past Late Payments (days)Excellent Less than 1 day lateGood Between 1 and less than 2 days lateAverage Between 2 and less than 25 days lateBelow average Between 25 and less than 60 days lateUnsatisfactory (however current on outstanding loans) Greater than 60 days late


Table 9 - Credit Risk / Concentration Per Economic SectorEach Item as a Percentage of Total Loans

Economic Sector March 19, 2016 March 20, 2015Industrial 35.2 32.2Construction 15.4 15.1Agriculture 1.8 0.4Mining 1.6 3.9Services 10.1 7.8Commercial 35.7 40.7Other 0.2 0.0Total 100.0 100.0

Table 10 – Off-Balance Sheet Commitments (Local Currency)Local Currency in IRR million

Off balance sheet commitments March 19, 2016 March 20, 2015Letters of credit 370,000 21,704Guarantees 14,775,364 10,276,387Managed accounts 957,530 880,890Others 70,154 0Total 16,173,048 11,178,981

Table 11- Off- Balance Sheet Commitments (Foreign Currencies equivalent in IRR)Local Currency in IRR million

Off balance sheet commitments March 19, 2016 March 20, 2015Letters of credit 2,137,746 648,329Guarantees 1,974,815 1,503,346Managed accounts 0 0Others 0 0Total 4,112,561 2,151,675

1.3.2 - Liquidity Risk and Assets and Liability Management

A daily report regarding changes in funds, uses of funds, costs

of funds, asset profitability and return on equity is provided by the finance department. Additionally a weekly meeting of managing director, assistants to managing director and other senior level managers including senior risk manager is

Table 8 - Loans Risk Weight According to Basel III Revised Standardized Approach (Issued December 2014)Each Item as a Percentage of Total Loans

Customer type categorized by sales and leverage Risk weight March 19, 2016 March 20, 2015Leverage < 3, Sales >= 1bn euros 60 0.0 0.0Leverage between 3 and 5, Sales >= 1bn euros 70 0.0 0.0Leverage < 3, Sales between 50m and 1bn euros 80 1.0 3.6Leverage < 3, 5m<= Sales < 50m euros 90 7.6 6.6Leverage > 5, Sales >= 1bn euros 90 0.0 0.0Leverage between 3 and 5, Sales between 50m and 1bn euros 90 8.2 7.0Leverage < 3, Sales < 5m euros 100 1.5 2.1Leverage between 3 and 5, 5m<= Sales < 50m euros 100 7.2 10.3Natural Persons Borrowers with financial data 100 0.0 0.0Natural Persons Borrowers with no financial data 100 9.9 9.3Leverage > 5, Sales between 50m and 1bn 110 17.6 15.4Leverage between 3 and 5, Sales < 5m euros 110 3.1 2.8Corporate and SME Borrowers with no financial data 110 12.1 13.9Leverage > 5, 5m<= Sales < 50m euros 120 18.0 17.3Leverage > 5, Sales < 5m euros 130 5.7 5.1Past due 60 days, and 180 days 150 3.6 3.9Negative Equity (Standard) 300 4.1 2.6Past due 18 months 300 0.5 0.0Average Risk Weight 117.9 115.9

Credit Risk – Loans Distribution based on leverage and sales (BCBS 2014 Revised Standardized Approach)For the previous financial year ended March 20, 2015, we reported the risk weight 115 percent for our loan portfolio based

on BCBS 2014 revised standardized approach. The BCBS 2014 approach has been superseded with a new model issued January 2016. For reasons of comparability we continue to report based on the 2014 approach.


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Table 12 – Liquidity Coverage Ratio – Part 1: HQLA as of March 19, 2016

High Quality Liquid Assets Amount(IRR million)

Percentage of Total HQLA

Level 1 Assets Cash and Cash Equivalent 281,202Regulatory Deposit with CBI 3,099,233Due from other banks (short term less than one week) 1,124,508Checks in clearing due from other banks 34,754

Total level 1 Assets 4,539,697 65.8Level 2 Assets

Level 2A Assets85% of participation bonds backed by government 2,107,875

Total level 2A Assets 2,107,875 30.5Level 2B Assets

50% of Short term investments in stock exchange 255,79615% of HQLA = 1,035,505Amount of Level 2 Assets above 15% of HQLA to be deducted 0

Total level 2B Assets 255,796 3.7Total Level 2 Assets 2,363,671 34.2

40% of HQLA = 2,761,347Amount of Level 2 Assets above 40% of HQLA to be deducted

Total HQLA 6,903,368 100.0

Table 13 – Liquidity Coverage Ratio – Part 2: Net Outflows & ResultLiquidity Coverage Ratio as of March 19, 2016

Outflows Amount(IRR million)

Exit ratePercentage Outflow

Stable DepositsCash Collaterals and blocked deposits 3,041,665 0 0Deposits of bank employees 246,826 5 12,341

Less Stable DepositsLong-term deposits with less than one month maturity date 171 10 17Short-term deposits of natural persons 3,227,944 10 322,794Long-term deposits of natural persons with more than one month maturity date 10,067,924 10 1,006,792Short-term deposits of legal entities with less than 200 Billion IRR deposits each 6,882,806 10 688,281Short-term deposits of legal entities with more than 200 Billion IRR deposits each 2,014,052 25 503,513Other deposits and dues to natural persons 173,076 15 25,961Special investment deposits 1,178,847 15 176,827Long-term deposits with maturity of more than one month of legal entities 3,035,532 15 455,330

Wholesale FundingLong-term deposits with maturity of less than one month of legal entities 0 25 0Short-term deposits of legal entities categorized as corporate with more than 200 Billion IRR deposits each 581,376 40 232,550Other deposits and dues to legal entities 1,628,311 40 651,324Deposits from other banks and financial institution 2,333,800 100 2,333,800Other dues to banks and financial institutions 469,037 100 469,037

Total outflow from funds 34,881,367 6,878,569Other dues that must be paid within 30 days

Dividend payable 4,718 100 4,718Tax provision 143,452 0 0Employee termination provisions 37,423 0 0Other dues and provisions 390,654 14 54,785Payable interest 150,230 100 150,230Off balance sheet commitments 20,258,609 10 2,025,861Estimated unused loan limits - - 2,332,365

Total outflow from funds and other dues 35,607,844 11,446,528InflowsEstimated inflows due to loans (under stressed condition) (2,487,856)LCR RatioNet Cash Outflows 8,958,672HQLA 6,903,368LCR = HQLA/Net Cash Outflows (Percentage) 77.1

held where the reports are discussed and decisions regarding future directions of the bank are taken. The Risk Management department periodically provides reports on Liquidity Coverage

Ratio (LCR), Net Stable Funding Ratio (NSFR) and Liquidity Gaps. Additionally, Risk Management Department provides reports on concentration of funds and loans.


Table 14 – Net Stable Funding Ratio (NSFR) Net Stable Funding Ratio as of March 19, 2016

Available Stable Funds (ASF) Amount(IRR million)

Factor(Percentage)

ASF (IRR million)

Liabilities and capital receiving a 100% ASF factorThe total amount of regulatory capital , before the application of capital deductions, as defined in paragraph 49 of the Basel III text, excluding the proportion of Tier 2 instruments with residual maturity of less than one year

5,808,485 100 5,808,485

Liabilities receiving a 95% ASF factorStable funds from LCR 3,288,491 95 3,124,067

Liabilities receiving a 90% ASF factor Term deposits from natural persons with residual maturities of less than one year , short-term deposits, demand deposits, qard-al-hasaneh deposits and similar deposits 13,296,039 90 11,966,435

Liabilities receiving a 50% ASF factor Other deposits and prepayments from natural persons, short-term special investment deposits, investment deposits from legal entities 13,865,689 50 6,932,844

Liabilities receiving 0% ASF factor Investment deposits from other banks, due to other banks and financial institutions, other liabilities 5,190,041 0 0

Total ASF 41,448,745 27,831,831

Required Stable Funds (RSF) Amount(IRR million)

Factor(Percentage)

ASF (IRR million)

Assets assigned a 0% RSF factorCash & Cash Equivalent, All central bank reserves (including required reserves and excess reserves), All unencumbered loans to banks subject to prudential supervision (including interbank placements) with residual maturities of less than six months.

4,539,697 0 0

Assets assigned a 5% RSF factorDebt securities representing claims on or guaranteed by sovereigns, central banks that are assigned a non-0% risk-weighted sovereign or central bank debt securities as specified in the LCR 1,531,776 5 76,589

Assets assigned a 15% RSF factor Corporate debt securities (including commercial paper) and covered bonds with a credit rating equal or equivalent to at least AA- 948,077 15 142,212

Assets assigned a 50% RSF factor All other non- HQLA not included in the above categories that have a residual maturity of less than one year, including loans to non- bank financial institutions , loans to non -financial corporate clients, loans to retail customers (i.e. natural persons) and small business customers, and loans to sovereigns, central banks and PSEs.

27,988,380 50 13,994,190

Assets assigned a 100% RSF factor All other assets not included in the above categories 6,440,815 100 6,440,815

Total RSF 41,448,745 20,653,805NSF1 = ASF/RSF (Percentage) 134.8

1. Off-balance sheet commitments are not considered

Table 15 - Concentration of Funds Each Row as a Percentage of Total Deposits

Number of Top Depositors March 19, 2016 March 20, 201520 27 42100 50 63200 63 74400 76 851000 91 9413684 99 10021455 100

Table 16 - Concentration of Loans Each Row as a Percentage of Total Loans

Number of Top Borrowers March 19, 2016 March 20, 201520 31 33100 76 79200 94 96432 99 100496 100


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Table 17 - Other Liquidity RatiosOther Liquidity Ratios March 19, 2016 March 20, 2015Local currency Loans / Local Currency Deposits 81.4 89.2Local Currency off Balance Sheet Commitments/ Local Currency Deposits 48.8 46.4Foreign currency Loans / Foreign Currency Deposits 88.6Foreign Currency off Balance Sheet Commitments/ Foreign Currency Deposits 323.2 245.9

1.3.3 - Market RiskRisks related to short-term equity investments, and changes in foreign exchange rate and interest rate are discussed in this section.

Short-term equity InvestmentsThe equity stock portfolio of the bank is relatively small,

however, it is regularly monitored. The stock portfolio consists of 48 corporate shares (IRR637,693 million), 41 corporates are listed companies in Tehran Stock Exchange (IRR597,269 million, 93.7 percent of stock portfolio) and 7 corporates are listed in Farabourse (IRR40,424 million, 6.3 percent of stock portfolio).

According to Basel II, market risk can be calculated using the Value at Risk (VaR) methodologies. The “Value at Risk” calculation must be done based on 0.5 percent probability (one tail) using daily standard deviation and 10 days horizon time. Each bank must meet, on a daily basis, capital requirement illustrated as the higher of previous day’s value at risk or an average of the daily value at risk in 60 working days. According to Basel II notes, the capital requirement equals to VaR Amount

*(3 + X) with X between 0 and 1. Our estimate of risk-weight of the short-term equity investments using a Basel-III Value at Risk model is 304 percent (the standardized Basel-III risk weight for equity investment in acceptable equity exchanges is 300 percent). The high risk weight of 304 percent imposes a policy of minimal and prudent equity investments in TSE listed companies.

The annualized standard deviation of stock portfolio return is estimated to be 13 percent and annualized return is estimated to be 27.8 percent. Assuming risk-free rate for term deposits to be 22 percent, the risk premium for stock portfolio is estimated to be 5.8 percent. From the 5.8 percent risk premium and the standard deviation of 13 percent a Sharpe Ratio of 0.4 is calculated. The Sharpe Ratio 0.4 is too low (1.0 is considered

ok), and considering the higher capital requirements for equity investments, MEB plans to further reduce its short-term equity investment. The following table shows the concentration of MEB’s investments in Tehran Stock Exchange (TSE) as of March 19, 2016 there were 45 stocks in the TSE portfolio whereas March 20, 2015 there were 58 stocks in the TSE portfolio.

Table 18 - Short-Term Equity Investments Portfolio CompositionEach Item as a Percentage of total short term investments

Investment Type March 19, 2016 March 20, 2015Tehran Stock Exchange Short-term Investments 93.7 93.7Other Short-Term Investments (Farabourse) 6.3 6.3Total Short-Term Investments 100.0 100.0

Table 20 –Concentration of TSE Short-Term Equity Portfolio

Tehran Stock Exchange (TSE) Equity Short-Term InvestmentsEach Row as a Percentage of Total TSE Investments

March 19, 2016 March 20, 2015Top 5 Stocks 52 45Top 10 Stocks 70 63Top 20 Stocks 90 83Top 45 Stocks 100 99Top 58 Stocks * 100

* There were 13 stocks less in March 19, 2016 than March 20, 2015

Table 19 – Calculation of Short-Term Equity Investments Risk Weight Using IRB-Foundation Basel-IIIShort-Term Equity Investments Risk Weight as of March 19, 2016

10 days portfolio standard deviation of returns (Percentage) 2.61Basel-III VaR multiplier 4Risk Weight (Percentage) 304


1.3.4 - Interest Rate Risk

Interest Rate Risk on Banking Book (IRRBB)MEB did not have any loans with floating rates, or significant optionality (e.g. early payment) affecting the profitability of its loans portfolio. IRRBB comprised a non-significant portion of overall risks of MEB because of the regulatory fixing of lending and deposits interest rates and an almost regulatory fixed flat yield curve. We have not observed any significant changes on profitability ratios due to regulatory changes on fixed rates of deposits and loans. However, risks of changes in regulatory interest rates remain where MEB may face loss of funds in case MEB abides by the CBI rules on fixed interest rates and other banks may deviate significantly from CBI rules.

Interest Rate Risk on Trading BookDuring the year ended March 19, 2016, there was no secondary market for trading bonds at discount or premium. All the bonds were traded at the nominal value plus coupons due. Towards the end of financial year (March 19, 2016), the government issued new bonds tradable in secondary market (Farabourse)

with discount. For next year ending March 19, 2017 we would report interest rate risk on trading book.

1.3.5 - Foreign Exchange RiskForeign exchange rate risk in MEB arises from the off-balance sheet commitments related to imports of goods. MEB engages only with clients who are not listed on internationally recognized sanctions lists and whose activities are allowed according to the imposed international sanctions. The foreign exchange commitments required direct dealing with CBI where the exchange rates were both guaranteed and allowed by CBI. MEB did not engage in direct market related foreign exchange activities or related hedging activities. MEB does not engage in profiting from changes to foreign currency exchange rates, however, occasionally, MEB would end up with open long or short positions in its normal activities for servicing clients engaging in import/export or other foreign exchange activities. With expected increase in international activities following the implementation of JCPOA, the foreign exchange risk is expected to increase for future reporting periods.

The above table illustrates foreign exchange guarantees and commitments and impact of a major change in the foreign exchange rates.

1.4 - Capital Adequacy Ratios (CAR)1.4.1 - CAR according to IRB-Foundation ApproachAccording to IRB-Foundation the average risk weight of loan portfolio was estimated to be 106.8 percent. We risk weighted our loans to other banks at a higher rate of 100 percent, because of our estimated low Basel-III capital adequacy ratio for other banks, The total long term and short term investment of the bank in financial institutions were less than 10 percent of the bank’s

Basel-III Tier 1 capital, so there were no deductions concerning these investments; however these investments were risk weighted at 250 percent. We risk weighted our investments in Tehran Stock Exchange at 300 percent. The market risk related to interest rate risk was estimated to be nil. The market risk due to foreign exchange rate fluctuations was extremely small and constituted about 0.01 percent of the total risk weighted assets. Regarding off balance sheet items, on average, the customers of Letters of Credit and Bank Guarantees have a much lower risk profile than our on balance sheet loan customers. For this reason we estimated the average risk weight of our off balance sheet items to be 70 percent equivalent to “BBB-“ credit rating.

Table 21- Foreign Exchange Open Positions Value at Risk (VaR )FX Value at Risk (VaR) _ 10 days, 0.5% probability as of March 19, 2016

Foreign Currency Open Position Equivalent IRR million VaR Equivalent IRR million

US Dollar -6,078 21Swiss Frank 84 3Indian Rupiah 613 14Emirate Dirhams 1,345 5Turkish Lira 2,532 120Iraqi Dinar 1,898 130Chinese Yuan 3 0Korean won -9,815 347Euro 27,050 1080Omani Rial - 30Total 24,050 1750Diversification effect -508With diversification effect 1,242FX market risk contribution to RWA ( four times VaR) 4,968Total Risk Weighted Assets including off balance sheet items, Market risk, and Operational Risk (RWA) 48,132,277

FX market risk contribution to RWA (pecentage) 0.01


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Table 22 - Assets Risk Weights - IRB-Foundation

On Balance Sheet Assets as of March 19, 2016Amount

(IRR million)

Each Item as Percentage of

Total Assets

Risk Weight (Percentage)

Risk Weighted

Assets (IRR million)

Cash and equivalents 281,202 0.7 0 0Regulatory Deposits with CBI 3,099,233 7.5 0 0Due from other banks (Checks in clearing) 34,754 0.1 0 0Due from other banks (Unencumbered Deposits) 1,124,508 2.7 100 1,124,508Due from CBI & other banks (Encumbered) 1,061,902 2.6Participation Bonds 2,479,853 6.0 0 0Investments in financial institutions less than 10% of Tier 1 Capital 564,777 1.4 250 1,411,943

Investments in financial institutions in excess of 10% of Tier 1 Capital 0

Non-financial short-term equity investments in Tehran Stock Exchange 511,591 1.2 300 1,534,773

Other long-term investment 4,230 0.0 100 4,230Account Receivables 812,901 2.0 100 812,901Loans to employees 249,043 0.6 100 249,043Loans excluding doubtful loans (Net of Provisions) 27,890,257 67.3 106.8 29,786,794Doubtful Loans (Net of Provisions) 98,123 0.2Due from subsidiaries 183,157 0.4 100 183,157Tangible Fixed Assets 2,003,930 4.8 100 2,003,930Intangible Assets 857,137 2.1 100 857,137Goodwill 6,165 0.0Other Assets 185,982 0.4 100 185,982Total of Assets 41,448,745 100.0 38,154,398

Table 23- Off-Balance Sheet Risk Weights - IRB-Foundation

Off Balance Sheet Commitments as of March 19, 2016Amount

(IRR million)

Conversion Factor

(Percentage)Risk Weight Risk

Weighted

Guarantees for Participation Bonds 835,740 50 70 292,509Warranties in Local Currency 14,775,364 50 70 5,171,377Warranties in Foreign Currencies 1,974,815 50 70 691,185Letters of Credits (Local Currency) 370,000 20 70 51,800Letter of Credits (Foreign Currencies Equivalent to Local Currency) 2,137,746 20 70 299,284

Trust Account Commitments 121,790 100 70 85,253Managed Accounts 70,154 100 70 49,108Credit Card Obligations 0 100 70 0Total of Commitments 20,285,609 6,640,157

Total of Risk weighted Assets and Commitments 44,794,555

1.4.2 - Basel-III Standardized ApproachFor calculation of CAR according to Basel-III Standardized Approach, the average risk weight of the performing loan portfolio will be set to 100 percent as opposed to 106.8 percent for IRB-Foundation. We risk weighted our exposure to other banks at 100 percent considering our estimated low Basel-III capital adequacy ratios for other banks. The long term investment of the bank in financial institutions were less than

10 percent of the bank’s Basel-III Tier 1 capital, so there were no deductions from capital concerning these investments, however these investments were risk weighted at 250 percent. We risk weighted our investments in Tehran Stock Exchange at 300 percent. The market risk related to interest rate risk was estimated to be nil. The market risk due to foreign exchange rate fluctuations was extremely small and constituted 0.01 percent of the total risk weighted assets.


Table 26 - Market Risk and Operational Risk

Risk TypeAmount

(IRR million)Business Type

Factor Multiplier Risk Weighted

Market risk due to exchange rate volatility 4,968 12.5 62,100

The risk weight for Operational Risk using Basic Indicator Approach and applying the corporate business factor of 18% to the average of last 3 years gross income and multiplying by 12.5

1,458,054 18% 1 12.52 3,280,622

FX Market Risk and Operational Risk 38,154,3981. According to Basel III Basic Idicatore Approach corporate banking requires a factor of 18%2. The number 12.5 is the inverse of 8% which is multiplicator to be used to caculate oprational risk weight in the denominator of capital adequacy ratio

Table 24 - Assets Risk Weights - Basel-III Standardized Approach

On Balance Sheet Assets as of March 19, 2016Amount

(IRR million)

Each Item as Percentage of Total Assets


Risk Weighted

Assets (IRR million)

Cash and equivalents 281,202 0.7 0 0Regulatory Deposits with CBI 3,099,233 7.5 0 0Due from other banks (Checks in clearing) 34,754 0.1 0 0Due from other banks (Unencumbered Deposits) 1,124,508 2.7 100 1,124,508Due from CBI & other banks (Encumbered) 1,061,902 2.6 0 0Participation Bonds 2,479,853 6.0 0 0Investments in financial institutions less than 10% of Tier 1 Capital 564,777 1.4 250 1,411,943Investments in financial institutions in excess of 10% of Tier 1 Capital 0 0.0 0 0 Non-financial short-term equity investments in Tehran Stock Exchange 511,591 1.2 300 1,534,773Other long-term investment 4,230 0.0 100 4,230Account Receivables 812,901 2.0 100 812,901Loans to employees 249,043 0.6 100 249,043Loans excluding doubtful loans (Net of Provisions) 27,890,257 67.3 100 27,890,257Doubtful Loans (Net of Provisions) 98,123 0.2 0 0Due from subsidiaries 183,157 0.4 100 183,157Tangible Fixed Assets 2,003,930 4.8 100 2,003,930Intangible Assets 857,137 2.1 100 857,137Goodwill 6,165 0.0 0 0Other Assets 185,982 0.4 100 185,982Total of Assets 41,448,745 100.0 36,257,861

Table 25 - Off Balance Sheet Risk Weights - Standardized Approach

Off Balance Sheet CommitmentsAmount

(IRR million)

Conversion Factor

(Percentage)


Risk Weighted

Guarantees for Participation Bonds 835,740 50 100 417,870Warranties in Local Currency 14,775,364 50 100 7,387,682Warranties in Foreign Currencies 1,974,815 50 100 987,408Letters of Credits (Local Currency) 370,000 20 100 74,000Letter of Credits (Foreign Currencies Equivalent to Local Currency) 2,137,746 20 100 427,549

Trust Account Commitments 121,790 100 100 121,790Managed Accounts 70,154 100 100 70,154Credit Card Obligations 0 100 100 0Total of Off Balance Sheet Commitments 20,285,609 9,486,453

Total of Risk weighted Assets and Off Balance Sheet Commitments 45,744,314

1.4.3 - FX Market Risk and Operational Risk Calculation


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1.4.4 - Tier 1 and Tier 2 Capital Adequacy Ratios Using Different Approaches

Table 27 – Summary of Total Risk Weighted Assets with Different Approaches

Risk Items (IRR million) IRB-Foundation Standardized Approach

Revised Standard Approach

On Balance Sheet Assets 38,154,398 36,257,861 2,907,961Off Balance Sheet Commitments 6,640.157 9,486,453 9,486,453Operational Risk 3,280,622 3,280,622 3,280,622FX Market Risk 62,100 62,100 62,100Total Risk Weighted Assets 48,132,277 49,087,036 55,737,136

Table 28 - CAR Calculation

Eligible Capital (IRR million) Basel-III IRB-Foundation

Standardized Approach

Revised Standard Approach

Paid in Capital 4,000,000 4,000,000 4,000,000Retained earnings 1,290,851 1,290,851 1,290,851Loss due to remaining amount of doubtful loans1 (98,123) (98,123) (98,123)Statuary reserves 517,634 517,634 517,634Common Equity Tier1 5,710,362 5,710,362 5,710,362Less investments in financial institutions above 10% of bank capital - - -

Less goodwill (6,165) (6,165) (6,165)Eligible Common Equity Tier1 5,704,197 5,704,197 5,704,197Additional Tier 1 - - -Total Eligible Tier 1 Capital 5,704,197 5,704,197 5,704,197General Loss Provision 419,956 419,956 419,956Less exceeding 1.25% of total risk 0 0 0Tier 2 Capital 419,956 419,956 419,956Total Eligible Tier 1 and Tier 2 Capital 6,124,153 6,124,153 6,124,153Total Risk Weighted Assets + Operational Risk + FX Risk 48,132,277 49,087,036 55,737,136CAR Tier 1 11.9 11.6 10.2CAR Tier 2 0.9 0.9 0.8CAR (Tier1+Tier2) 12.8 12.5 11.0

Table 29 - Stress Test Assumptions and Results

Economic stress scenariosYear

Average Oil Price/ Barrel

Real GDP Growth rate(Percentage)

Doubtful loans as a

(Percentage) of Total Loans

Loans Risk Weight

(Percentage)

Expected Loss/Profit

(IRR million)

Profits Distribution (Percentage)

CAR IRB-F

Scenario 1 (Base case) $40 +3 to +4 0.6 107 1,271,735 80 12.8Scenario 2 (Less severe) $35 +1 to +3 5.3 101 -48,983 0 9.8Scenario 3 (more severe) $30 -1 to +1 7.3 113 -616,620 0 8.1Scenario 4 (most severe) $20 -4 to -1 9.2 121 -1,184,256 0 6.7

1.5 - Stress TestingIn order to perform our stress testing we assume that MEB will maintain the same balance sheet size and composition as of March 19, 2016 for the year ending March 20, 2017. We assume the credit quality of our clients would depend on national real

GDP, which in turn would depend on average oil price for the year. The table below summarizes the severity of economic situations dependent on average oil price for the year and the effect on credit worthiness of our clients and the resulting loss/profit and the Capital Adequacy Requirement (CAR).

Scenario 1: Base case scenario: Similar to current situation. For the year ending March 20, 2017, we assume the same assets composition and the same credit worthiness for loans as of March 19, 2016 as reported in the Table 6 – Loans Internal Rating.Scenario 2: Less severe scenario: For the year ending March 20, 2017, we assume the same assets composition; however, the credit ratings of all performing loans with rating of CCC and above are knocked down by one notch. 90 percent of performing loans rated CCC- to C go to overdue status. All currently

overdue, suspended, and doubtful loans and 10 percent of performing loans rated CCC- to C go to default status. Also we assume 20 percent of all not-rated loans go to overdue status.Scenario 3: More severe scenario: For the year ending March 20, 2017, we assume the same assets composition; however, the credit ratings of all performing loans with rating of CCC and above are knocked down by two notches. 80 percent of performing loans rated CCC- to C go to overdue status. All overdue, suspended, and doubtful loans and 20 percent of performing loans rated CCC- to C and 4 percent of not-rated


2. Compliance

MEB, has robust policies and procedures and programs to help employees understand and avoid compliance violations on subjects ranging from our code of ethics, fair lending practices,

information protection and privacy to financial crimes, anti-money laundering, countering financing of terrorism, and anti-bribery and corruption.

2.1 - ResponsibilitiesMiddle East Banks’ compliance department’s ultimate goal is to ensure that the bank adheres to laws, rules and standards. Common tasks include identifying risks, assessing, controlling, monitoring and reporting to the Board of Directors. This may include assessing and testing the adequacy of MEB’s policies and tools, such as risk assessment tools. The compliance team

also designs and implements solutions to address any identified risks, develop compliance programs for new regulations, and oversee employee training programs.The Compliance department manages the legal services, reviews trade reports, and educates to avoid unintentional rule breaches or conflicts of interest, and advices on regulatory challenges.

2.2 - StructureThe Compliance department is dedicated to protecting the reputation of the bank and managing risks across all business

Figure 2 Comparison of CAR and Doubtful Loans/Total Loans Among Scenarios

loans go to default status. Also we assume 25 percent of all not-rated loans go to overdue status.Scenario 4: Most severe scenario: For the year ending March 20, 2017, we assume the same assets composition; however, the credit ratings of all performing loans with rating of CCC and above are knocked down by three notches. 70 percent of

performing loans rated CCC- to C go to overdue status. All overdue, suspended, and doubtful loans and 30 percent of performing loans rated CCC- to C and 8 percent of not-rated loans go to default status. Also we assume 50 percent of all not-rated loans go to overdue status.


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areas. The Head of Compliance is responsible in implementing, reviewing the policies and procedures of the department directly reporting to the CEO with a dotted line to the Board Members.

The Compliance department also interacts with other parts of the firm including but not limited to Legal, International, Credit, Risk, Internal Audit, and external financial regulators.

2.3 - Anti-Money Laundering and Countering the Financing of TerrorismMEB’s Anti-Money Laundering (AML) program provides strong support for international efforts to combat money laundering, financing terrorism and other criminal acts. Furthermore protective measures against Politically Exposed Persons (PEPs), suspicious activities, shell companies including banks and financial institutions, and correspondent banking relationship, are subjects of interest with regards to AML and CFT. We conduct customer due diligence and in high risk situations enhanced due diligence on clients and current transactions using meticulous procedures and an automated monitoring system through this compliance program.MEB AML standard complies with the Central bank of Iran

(CBI) Anti-Money Laundering Act and the guidelines of the Financial Intelligence Unit (FIU) of Iran. It is also in line with the recommendations of the Financial Action Task Force (FATF) on Money Laundering.AML requirements apply to all business units of the bank and all the subsidiaries. All the employees and senior managers are required to comply with them to prevent the name or the products and services from being misused for money laundering and financing of terrorism purposes. To ensure that MEB’s Compliance department applies the best possible compliance practices, routinely reviews goals and strategies for the prevention of financial crimes.

2.4 - AML/CFT ProjectIn the year ended March 19, 2016, MEB collaborated members from various departments and developed a project team primarily and specifically to enhance the AML and CFT function of the bank to an international standard in compliance with FATF’s 40 recommendations. Members of this project team included participants from our legal, risk, international, branches, IT, audit, policy & procedures, research & development, credit, and operations internally along with external subsidiaries including Exchange Co. and Stock Brokerage Co., all of which

are directly supervised by the CEO. This project team was established in order to ensure the primary goal of the Bank, which is to establish a compliance culture within the bank. Ensuring that members of all vital departments were available within this project team also guaranteed that all departments would have a hand-on approach and that the bank as a whole will be aware of all compliance policies and procedure.

2.5 - SanctionsMEB is committed to comply with relevant international economic and trade sanctions laws through identifying, mitigating and managing relevant risks, not simply because it is required to, but it is the right thing to do. Most important sanctions regimes that MEB adheres to are the United Nations Security Council Resolutions (UNSCR), the European Union (EU), Office of Foreign Assets Control (OFAC), United Kingdom (UK) and Switzerland (SECO). MEB complies with the requirements of the Iranian sanctions regimes both within Iran and abroad. The Bank foregoes any business that would breach any Iranian sanctions.JCPOA- On July 14, 2015, the P5+1 (China, France, Germany,

Russia, the United Kingdom, and the United States), the European Union, and Iran reached a Joint Comprehensive Plan of Action (JCPOA) to ensure that Iran’s nuclear program will be exclusively peaceful. October 18, 2015 marked Adoption Day of the JCPOA, the date on which the JCPOA came into effect and participants began taking steps necessary to implement their JCPOA commitments. On January 16, 2016, marked Implementation Day of the JCPOA. As a result of Iran verifiably meeting its nuclear commitments, the United States has lifted its nuclear-related sanctions on Iran, as described in the JCPOA. Furthermore all other nuclear-related sanctions on Iran including the UN and EU sanctions, are terminated.

2.6 - Anti-Bribery and Corruption Middle East Bank (MEB) stance on Bribery and Corruption, complements MEB’s core values of integrity and the standards of behavior expected from the Bank’s staff. The Bank is committed to compliance with all laws and regulations relating to anti-corruption and bribery in Iran and internationally subject

to the principle of integrity in business. MEB’s policy position is that any form of bribery and corruption is prohibited. This applies to accepting, offering, paying, giving, soliciting, or authorizing bribes. This Policy sets MEB’s minimum standards.

2.7 - Assessing and Accepting ClientsAssessing clients’ aim is to minimize risks relating to money laundering, financing of terrorism and other financial crimes. Our procedures apply not only to individuals and corporations

that are or may become our direct business partners, but also to beneficial owners that stand behind them or are indirectly linked to them.

2.8 - Know Your CustomerMEB has developed effective procedures for assessing clients Know Your Customer (KYC) and a process for accepting new clients in order to facilitate comprehensive compliance.MEB’s KYC procedures start with intensive checks before accepting a client and continue in the form of regular reviews. KYC ensures

that the advisors know detailed information about the clients’ risk tolerance, investment knowledge and financial position. KYC forms protect both the clients and the banking advisors. Clients are protected by having their Relationship Managers know what investments best suit their personal situations.


2.9 - Enhanced Due Diligence Enhance Due Diligence (EDD) is required by the compliance department where the client and product/service combination is considered to be a greater risk. This higher level of due diligence is required to mitigate the increased risk. At MEB we try to mitigate any high risk situation where there is an increased opportunity from money laundering or terrorist financing through the services and products.

MEB considers a number of situations counted as high risk such as not meeting clients face to face or when dealing with a PEP. Not all high risk customers will be involved in money laundering or other criminal activity but that there is an increased opportunity to be involved and to ensure that MEB can distinguish such scenarios.

2.10 - Compliance SystemsMEB has a comprehensive risk management system that, in general, meets its own business management needs and statutory requirements. AML and sanctions are managed

through intelligent software systems, with ability to detect suspicious transactions and designated persons.

2.11 - Dealing with Reputational RiskReputational risk describes the risk of losses from events that damage confidence in MEB within the banking sector or in the products and services they offer. It particularly relates to the confidence of customers, investors, the labor market, and the general public. MEB has included reputational risk in its risk

strategy by taking account of the risk of a loss of confidence in the entities within the Banking sector. In response to potential critical events, crisis communications aimed at mitigating reputational risk will be undertaken to prevent greater damage to the MEB.

2.12. Awareness and Training MEB ensures that all its employees are made aware of the provisions of the relevant legislation and the obligations imposed on staff and the Bank. The staff are given training on how to recognize and deal with transactions which may be

related to money laundering or terrorist financing. Trainings as part of our financial crime compliance is provided at least twice annually.

2.13 - Reporting All reports are investigated and reported by the compliance department to the authorities. Additionally the Bank keeps records of a customer’s identification for a period of at least

five (5) years as per the regulations and the bank policies. The Head of Compliance is also obligated to provide monthly and quarterly reports to the CEO and board members respectively.

2.14 - Ethics and IntegrityMEB’s compliance culture is anchored in the code of ethics. The code is based upon the bank’s core values and articulates its commitment to the highest standards of ethical and professional conduct. Each year, every employee is required to complete

training and acknowledge their understanding of the Bank’s code of ethics. The annual compliance training program also includes role specific courses which provide information to employees that help ensure adherence with laws and regulations.

2.15 - Compliance CommitteeThe Compliance Committee shall assist the Board of Directors in fulfilling its corporate governance responsibilities and in providing oversight in the implementation of the Bank’s Compliance system, including but not limited to the Bank’s

Money Laundering and Terrorist Financing Prevention Program. This committee defines the risk appetite of the bank with respect to compliance risks.


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3. Internal Audit

3.1 - Structure of the Internal Audit DepartmentThe internal Audit department of the bank was created in 2012 under the direct supervision of the board of directors. Since 2013 with establishment of the Audit Committee according to the requirements of the Stock Exchange Organization, the internal audit department shall function under the supervision and guidance of the Audit Committee. According to the policy of the internal audit approved by the board of

directors, this department is independent of the executive management. It is responsible for evaluating the performance of various administrative departments, supporting departments, department of risk and compliance, headquarters (second line of defense) and subsidiaries, and awareness of the Board of Directors regarding the efficiency and effectiveness of operations and implementation of risk controls.

3.2 - Internal Control OperationsCOSO Internal Control FrameworkIn order to achieve the objectives set forth in the policy, the Audit Committee oversees management in light of the ongoing assessment of internal controls at all levels of bank deals. The assessment is based on the COSO internal control integrated framework that was revised in 2013. The 17 principles in the form of 5 is defined to review the management component.

Three lines of Defense ModelInternal audit department functions based on three lines of defense model in which investigation of the risks and the operation is done in three lines of defense and the assessment of all bank departments is done according to 17 principles of COSO internal control framework. Roles and responsibilities of internal auditors as a third line of defense in connection with any of the above mentioned principles and program of operations management is planning accordingly.

Areas of InterestPart of the most important areas which are in the interest of the Bank are as follow:• Strategic Alignment: Due to different strategies of Middle East

bank operations, internal audit department constantly strives in the form of various reports, the board of directors regarding the alignment of operations with bank strategies and navigate through a series revolves to fulfill the bank’s strategy. This is to ensure that all resources are being allocated toward the most important objectives and initiatives of the bank.

• Executive management and business climate: One of the impacts of the culture and conduct is to increase the satisfaction and trust among customers, regulators, employees and external stakeholders and also performance of the business and achievement of business objectives, Internal audit assesses conduct and culture of the bank. This is one of the main issues in the Audit Universe of the internal audit function.

• Risk Management: The internal audit department coordinates a holistic approach to enforce risk assessment. It facilitates an integrated risk assessment including all relevant functions within the bank to ensuring that a common risk language and an understanding of bank-wide risk is well applied. The internal audit department based on each department and its operations, assesses credit and liquidity risk and if there is a flaw or weakness, it shall report to the Audit Committee and Board of Directors. Identifying the risks and determining the risk appetite in all operations are considered across the Audit Universe and internal audit assessment. Also this assessment include risks related to capital adequacy requirements of Basel and the central bank. At last, this department ensures training programs offered to employees are appropriate for their role and responsibilities.

• Compliance with laws and regulations: The internal audit department assesses the bank’s approach to managing its compliance activities. Furthermore this department evaluates the bank’s response to any notable instances of noncompliance. In many cases, the objectives of assessments done by the internal audit department are to ensure correct


and effective implementation of laws and regulations. Additionally, making sure to update regulations and administrative instructions to issue new rules or modify previous regulations and the assessment of bank’s risks are further missions of internal audit department of the bank.

• Information Technology: The increasing dependence of banks on information technology and focus on services, products and operations on that basis increases the importance of the existence of internal controls in the IT demands. Cyber risk assessment is performed to ensure the board whether management considers the threats posed in the constantly evolving environment. The internal audit department planned to put on its agenda to review and evaluate information technology internal controls based on the COBIT 5 framework to ensure the effectiveness of risk controls in this area, and particularly cyber risks.

• Auditing based on data analytics and data mining: With the increasing volume and complexity of banking operations, data analytics and continuous auditing assist internal audit function in the following aspects:- Ensuring timely detection of fraud, diversion or mistake- Determining risky areas to carry out necessary audits- Reduction of audit costs in terms of time and money

In order to ensure the fulfillment of the above perspectives, the internal audit department of the bank’s aim is to implement automated auditing focused on root cause analysis and management’s responses to risks, including business anomalies and trigger events.

• International regulations of anti-money laundering and combating the financing of terrorism: Considering the current situation of the country and strategy of the bank, one of the main objectives of the internal audit department is to provide assurance to the board regarding the level of compliance in the bank’s operation with international regulations of anti-money laundering and countering the financing of terrorism. In this regard, recommendations of FATF are criteria for action of this department. The latest version of those recommendations includes 40 recommendations which were issued in 2013. The mentioned 40 recommendations entail 274 requirements; more than 90 of them are related to banks and financial institutions. Thus, compliance with these requirements is one of the priorities of the Bank to facilitate correspondent relationships with international banking system. Therefore assessment of the bank with respect to AML and CFT is on the agenda of internal audit department.

4. Analysis of Financial StatementsPursuant to the legal obligation on the companies to submit financial statements in accordance with International Financial Reporting Standards (IFRS), enforceable from 2017 onward,

MEB plans to present its financial statements alongside its Annual Report of 2016 based on IFRS guidelines. A summary of the Bank’s financial operation in 2015 and 2016 follows.

4.1 - Financial and Operational PerformanceFinancial and Operational Performance of the Bank for years 1392 to 1394 are as follows:

Principal Balance Sheet Items

Description Year Ended March 19, 2016

Percentage of Total

Increase (Decrease)

Year Ended March 20,

2015

Percentage of Total

Increase (Decrease)

Year Ended March 20, 2014

Percentage of Total

(IRR million) Percentage (IRR million) Percentage (IRR million)

A) AssetsLoans 28,095,515 68 31 21,474,088 70 64 13,057,539 61Investments 3,648,680 9 133 1,562,813 5 -7 1,677,563 8Fixed Assets 2,763,709 7 1 2,747,766 9 21 2,271,766 11Statutory Deposit 3,099,233 7 7 2,891,444 9 51 1,910,989 9Other Assets 3,774,581 9 85 2,041,080 7 -13 2,334,726 11Total Assets 41,381,718 100 35 30,717,191 100 45 21,252,583 100B) LiabilitiesDeposits 34,416,163 83 38 24,914,454 81 73 14,422,913 68Other liabilities and provisions 1,170,567 3 61 728,551 2 -62 1,941,560 9

Total Liabilities 35,586,730 86 39 25,643,005 83 57 16,364,473 77C) Shareholders’ EquityShare Capital 4,000,000 10 0 4,000,000 13 0 4,000,000 19Retained Earnings and Legal reserve 1,794,988 4 67 1,074,186 3 21 888,110 4

Total Shareholders’ Equity 5,794,988 14 14 5,074,186 17 4 4,888,110 23Total Liabilities and Shareholders’ Equity 41,381,718 100 35 30,717,191 100 45 21,252,583 100

D) Off Balance sheet commitmentsL/C Commitments 2,507,746 274 670,033 -11.44 756,603Guarantees issued 16,750,179 42 11,779,733 203 3,892,820


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LoansIn 2016, the Bank’s total loans experienced a 31 percent growth compared with the previous year, increasing from IRR21,474,000 million to IRR28,095,000 million. Although this trend did not satisfy the management expectations, it is worth mentioning that the loans are 68 percent of total assets of the bank which shows special consideration for asset management. The quality of the bank’s Loans portfolio is demonstrated by the fact that just 4.2 percent of the loans are non-performing and the most part is overdue.

InvestmentsOut of the IRR3,649,000 million investments, IRR657,000 million was allocated for long-term investment in MEB Brokerage Co, MEB Currency Exchange, Kardan Investment Bank, Dadeh Pardazan Seemaye Aftab (DSA) and MEB Life Insurance. Also IRR511,000 million was invested in the shares of companies listed on Tehran Stock Exchange. The remaining is related to bonds and mutual funds units which are acquired for the aim of liquidity management and funding risk mitigation.

Fixed AssetsIRR2,385,000 million of the Bank’s total fixed assets is related to its Main Office’s and branches’ land, plants and goodwill which comprises only 6 percent of the Bank’s total assets. 2 percent reduction in this percentage compared with last year demonstrates involving the resources in interest-bearing assets. At the end of the year Bank runs 13 branches, out of which 7 are freeholds and 6 are leaseholds.

Other AssetsIRR3,774 billion includes: IRR1,097 billion Due from other banks, IRR1,393 billion Cash and the remaining is related to Other Receivables.

DepositsThe total deposits experienced 38 percent growth compared with the previous year. Although this growth ratio is higher than the average for the industry, it has not reached the Bank’s ideal point. Besides, the deposits to capital ratio increased from 6.2 to 8.6 compared with last year and it is expected that this ratio will be growing to 15 in the near future.

Principal Balance Sheet Items


Percentage of Total

Increase (Decrease)


Percentage of Total

Increase (Decrease)


Percentage of Total

(IRR million) Percentage (IRR million) Percentage (IRR million)

A) IncomeInterest income 6,510,681 89 32 4,932,743 94 101 2,459,319 90Net income (loss) from investment 336,790 5 2038 (17,376) 0 109 191,694 7

Fee and commission income 390,259 5 61 243,084 5 190 83,865 3

Other Income 56,658 1 -9 62,091 1 13667 451 0Total Income 7,294,388 100 40 5,220,542 100 91 2,735,329 100B) ExpensesInterest Expenses (4,910,753) 67 32 (3,706,636) 71 151 (1,475,361) 54Administration and General Expenses (541,057) 7 57 (344,132) 7 74 (197,581) 7

Provision for loans (199,361) 3 34 (148,809) 3 -6 (158,621) 6Depreciation and amortization (132,716) 2 173 (48,677) 1 120 (22,161) 1

Other Expenses (9,981) 0 -9 (11,022) 0 1179 (862) 0Total Expenses (5,793,868) 79 36 (4,259,276) 82 130 (1,854,586) 68C) Profit Before Tax 1,500,520 21 56 961,266 18 9 880,743 32D) Net Profit 1,360,802 19 60 848,516 16 3 820,029 30

IncomeBank’s commission based income reached 7.6 percent of total income and it is expected to grow substantially to more than 10 percent in the following year together with the increase in international operation and fee income. A crucially important fact is that the 89 percent of Bank’s revenues comes from banking loans and IRR285,000 million of fee income is related to guarantees revenues experiencing 66 percent growth.

Expensesi- Interest Expenses

One of the major expense components of every bank is its interest expense. Compared with last year, MEB has succeeded in decreasing the cost of funds from 18.9 percent to 18.2 percent; considering decreasing policies in rates of interests on Investments deposits.

ii- Provision for Doubtful Debt

As mentioned before, the ratio of none performing loans to total loans stands at 4.2 percent. out of this, IRR104 billion is general provision and remaining is specific provision.


4.2 - Returns on Assets and Liabilities and their compatibility with Profit and Loss Account

DescriptionAverage Balance

(IRR million)

Percentage of Total

Projected Return Rate

(percent)

Weighted Return Rate

(percent)

Amount Of Return

(IRR million)

Actual Return(IRR million)

CashCash 161,762 0 0 - - - (Unencumbered)Current Accounts 745,809 2 0 - - - (Unencumbered)Term Deposits 1,005,545 3 23.8 1 239,320 236,595Due from other BanksLimited Deposits 532,171 2 0.00 - - -Inter Banks Checks 68,847 0 0 - - -Loans 22,480,049 65 27 18 6,159,533 6,010,603InvestmentsInvestment in Listed Shares 551,214 2 25 0 137,803 136,816Investment in other Companies 561,310 2 35 1 196,459 199,974 Participating Bonds 876,673 3 26 1 227,935 232,276Other accounts receivable 1,619,766 5 - - - -Fixed Assets 2,895,666 8 - - - -Statutory Deposit 3,125,678 9 1 0 31,257 31,207Other Assets 97,436 0 - - - -Total Assets 34,721,926 100 20 Due to other BanksCurrent Deposits 167,641 0 0 - - -Term Deposits 713,199 2 2 0 (11,055) (11,057)Customres' Deposits 3,980,389 11 0.00 - - -Dividends Payable 58,406 0 - - - -Provision for income tax 145,241 0 - - - -Other liabilities and provisions 433,572 1 - - - -Staff termination benefits 32,230 0 - - -

Investment depositsTerm Deposits 22,867,975 66 21.06 14 (4,816,497) (4,737,040)Inter Banks Deposits 728,750 2 23 0 (165,572) (162,657)Total Liabilities 29,127,403 84 14.38

Accumulated Depreciation 115,784 0 - - - -Provision for Doubtful Debts 385,032 1 - - - -Total Provisions 500,816 1

Share Capital 4,000,000 12 - - - -Legal Reserve 401,422 1 - - - -Retained Earnings 692,285 2 - - - -Total Shareholders' Equity 5,093,707 15

Total liabilities and shareholders’ equity 34,721,926 100 Net Profit before Fee Income, General Expenses and Doubtful Debts Provisions 1,999,183 1,936,718Net Return On Assets before Fee Income, General Expenses and Doubtful Debts Provisions 6%Fee Income 430,742 430,742Expenses (866,940) (866,940)Profit Before Tax 1,562,985 1,500,520


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4.3 - Summary Financial and Operational Ratio For Years Ended March 20, 2015 and March 19, 2016

Description 2016 2015Capital Adequacy Ratio 18.01 20.96Loans to Deposits 83 88Loan to Total Assets 68 70Total Expenses to Total Income 81 84Liability Ratio 86 83Return on Assets 4 3Return on Capital 34 21Total Deposits to Capital (times) 8.6 6.23Interest paid to Interest Received 75 75Interest paid to Total Deposits 18.24 18.90Interest Received to Loans 27.40 28.10Interest Paid to Total Expenses 83 85Interest Received to Total Income 82 81Non-Performing Loans Ratio 4 2Depreciation to Total Expenses 2.20 1.14Personnel Expenses to Total Expenses 5 4Bad Debt Expenses to Total Expenses 3 3

Description 2016 2015Total Income per Branch (Average no.) 607,866 549,531Net Profit per Branch (Average no.) 113,400 89,317Total Deposits per Branch (Average no.) 2,868,014 2,622,574Total Loans per branch(Average no.) 2,387,533 2,297,006Total Income to the Number of Personnel 23,995 20,966Net Profit to Number of Personnel (Average no.) 4,476 3,408Total Deposits to the number of Personnel (Average no.) 113,211 100,058Total Loans to the number of Personnel (Average no.) 94,245 87,637

4.4 - DepositsThe result of our efforts in mobilization of savings is summarized in the table below:

Rial Customers’ Resources (IRR million)

DescriptionMarch 19, 2016 March 20, 2015

Number Amount Percentage of Total Number Amount Percentage

of Total

Current Deposits 5,579 3,232,708 10 3,545 895,893 4Ordinary Short-term Investment Deposits 23,792 11,304,114 37 13,830 6,195,949 28Special Short-term Investment Deposits 567 960,185 3 600 1,347,205 63-month and 6-month Investment Deposits 266 1,165,675 4 86 207,846 0.90six-month Certificate of Deposits 98 43,440 0.10Long-term Deposits 3,958 12,578,076 41 3,332 12,685,524 57Deposits against Guarantees issued and opened LCs 1,738 1,510,154 5 908 1,005,822 4

Total 35,900 3,750,911 100 22,399 22,381,679 100

Rial Customers’ Resources (IRR million)


Number Amount Percentage of Total Number Amount Percentage

of Total

Current Deposits 421 53,348 4.50 263 30,793 9Ordinary Short-term Investment Deposits 8 627 0.05 8 5,329 2Special Short-term Investment Deposits 47 13,172 1.15 41 7,007 2One-year Deposits 218 822,283 70 138 70,750 20.60Deposits against Guarantees 3 14,137 1.30 2 4,843 1.40Deposits against Letters of Credit 28 277,397 23 10 224,321 65

Total 725 1,180,964 100 462 343,043 100

(percentage)

(IRR millions)


Interest Bearing and Non-interest bearing Deposits (IRR million)


Number Amount Percentage of Total Number Amount Percentage of TotalNon-interest Bearing Deposits 7,317 4,742,861 15 4,453 1,901,714 8Interest Bearing Deposits 28,583 26,008,050 85 17,946 20,479,965 92

Total 35,900 30,750,911 100 22,399 22,381,679 100

Comparative Analysis of Fluctuations of Interest Expense on Rial Customers’ Deposits



Average Balance of Deposits (IRR million) 25,896,958 19,444,729Weighted Average Interest Rate on Deposits (In percentage, before subtracting Satutory Deposit) 18.24 19Interest Expenses on Rial Deposits (IRR million) 4,723,335 3,707,698Increase in Interest Expenses (IRR million) 1,015,637 2,233,757Increase in Interest Expense Due to Volume(IRR million) 1,225,923 1,885,876Increase Percentage 120 84Increase in Interest Expense Due to Rate (IRR million) (210,286) 347,881Increase Percentage -20 16

4.5 - Summary of Loans and CommitmentsDescription Approvals (Volume) Utilized (Outstanding) on March 19, 2016Loans 31,641,577 27,720,647Issued Bank Guarantees 21,433,207 16,750,179LCs 8,896,378 2,507,746

Comparative Analysis of Fluctuations of Interest Income on Customers’ Rial LoansDescription 2016 2015Average Balance of Loans (IRR milliom) 22,012,461 15,054,820Interest Income on Loans (IRR milliom) 5,963,462 4,220,644Average Rate of Interest (percentage) 27.4 28.1Increase in Interest Income (IRR milliom) 1,742,818 2,257,622Increase in Interest Income Due to Volume (IRR milliom) 1,955,097 2,125,028Percentage Increase 112 94Increase in Interest Income Due to Rate (IRR milliom) (212,279) 132,594Percentage Increase -12 6


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4.6 - Comparison of Budgeted and Actual Profit and Loss for the Year ended 20 March 2016(IRR millions)

Forecasted 2017 Actual 2016 Projected 2016

Interest income 8,367,149 6,510,681 6,302,613Interest Expenses (5,717,329) (4,910,753) (4,803,691)Net interest income 2,649,820 1,599,928 1,498,922

Fee and commission income 350,480 390,259 339,600

Fee and commission expense (12,201) (9,872) (8,151)Net fee and commission income 338,279 380,387 331,449

Net income (loss) from investment 325,031 336,790 221,499Net foreign exchange transactions income 65,501 50,355 65,114Total operating income 390,532 387,145 286,613

Other income 43,783 6,303 68,929Administration and general expenses (965,469) (541,057) (533,270)Provision for loans (527,808) (199,361) (149,724)Finance costs - (109) -Depreciation and amortization (157,000) (132,716) (92,115)Profit before Tax 1,772,137 1,500,520 1,410,804Income tax expense (176,348) (139,718) (209,347)Profit 1,595,789 1,360,802 1,201,457Number of Shares (1000 shares) 4,000,000 4,000,000 4,000,000EPS 399 340 300

5. InvestmentsThe summary of the Bank’s direct investments and its proprietary trading activities in Tehran Stock Exchanges as of

March 19, 2016 are presented in the following two tables:

5.1 - Listed Companies in Tehran Exchange (in IRR million)

Description Cost Market Value Dividend Transaction Profit (Loss)

Invetment in Listed Shares 637,692 511,591 84,604 (14,557)

5.2 - Unlisted Companies

Company’s Name Number of Total Shares

Percentage of Paid-up Capital

Percentage of Bank’s Ownership Cost

Dadeh Pardazan Simaye Aftab 30,000,000 35 100 10,500MEB Brokerage Co. 70,000,000 100 75 67,404Kardan Investment Bank 2,000,000,000 64 32.92 421,332MEB Currency Exchange 40,000,000 100 95 38,000MEB Life Insurance 1,200,000,000 50 20 120,000

Dadeh Pardazan Simaye Aftab Co. (DSA)DSA was incorporated on February 5, 2013, with a capital of 30,000 IRR million. The DSA’s initial mission was the localization and customization of the acquired banking system for MEB. Subsequently DSA was given the responsibility of operating and maintaining the MEB’s entire technology requirements. These include information technology, hardware and network services. DSA operates from MEB’s Operations

Center and provides the full spectrum of technology services, including banking software application, system software, hardware, network services, changes/enhancements, and maintenance and project management. In addition to the in-depth knowledge of the banking systems, DSA personnel have a unique and highly effective project management skill in the development and implementation of time critical online banking systems.


Middle East Bank Brokerage Co.Middle East Bank Brokerage Company has been established in March 1995 with a total paid in capital of IRR100 million and registered in Tehran Judiciary Registration Dept. under number 120215. The company’s previous name was “SAHAM POUYA” and new owners of the company changed the name to the current name in 2013. The Company’s major activities include trading and market making services, financial and consulting services.

Middle East Bank Currency Exchange Co.Middle East Bank Currency Exchange Company was incorporated on February 2, 2015, with a capital of IRR40,000

million. Cash bill exchange, gold coin trade, and trustee money transfer are among its activities.

Middle East Bank Life Insurance Co.The establishment of Middle East Bank Life Insurance Co. has been authorized by the Supreme Insurance Council in September 2012 and the underwriting process has been completed in March 2016 via OTC Third Market. Founders’ Assembly is going to be held in near future with a capital of IRR1,200,000 million. The company is going to be established on the most up-to-date techniques of investment management, risk management, business intelligence, IT and innovation in new insurance products.

Chapter 3

SURVEY OF THE IRANIAN ECONOMY

SURVEY OF THE IRANIAN ECONOMY 43

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In spring of 1393 (spring of 2014) Iran’s economy finally managed to put an end to eight consecutive quarters of GDP contraction and started to register positive growth rates. But the steep fall in international oil prices that started in the fall of that year checked that growth and kept it at low levels. Oil price drops in 1394 were so sharp that even though Iran managed to raise its oil exports by 12 percent and get close to regaining its pre-sanctions share of the global market, its oil revenues hardly increased at all. Given the structural problems in the country’s money market, shortcomings in the capital market, and the direct and indirect dependence of many economic activities on oil revenues, the fall in oil revenues further exacerbated the existing credit crunch and low demand. The necessary cuts in government development expenditures led to sharp contractions in the construction sector that had already been plagued with recession since 1392. Latest estimates indicate that in 1394 the agriculture and services sectors grew while industry contracted, bringing about a 1.0 percent growth in the GDP. The negative growth of the industry was partly due to a 16.4 percent contraction of the value-added in construction. On the expenditure side, private and public consumption increased by 2.5 and 7.3 percent, respectively, while gross fixed capital formation contracted by 15.6 percent, further endangering GDP growth prospects.In 1394, the economic participation rate of the population aged 10 and above increased by one percentage point and reached 38.2 percent;. This rate was 63.2 percent for men and 13.3 percent for women. Even though in net terms the economy added more than 664 thousand new jobs, the 883 thousand new entrants to the economically active population raised the unemployment rate by 0.4 percentage point to 11.0 percent. As in previous years, the unemployment rate among women was much higher than among men, and was much higher in urban areas than rural. Unemployment rate in the age group 15-29 was 23.3 percent, underlines the fact that the youth remained

particularly under pressure.In operating budget of the government, tax revenues grew by 7.2 percent in the first 11 months of 1394 which, in light of the inflation rate of 11.9 percent, indicates a drop in real terms. Regarding performance of the government budget, the 73.9 percent tax revenue realization and 91.1 percent current expenditures realization indicate that the government’s actual performance in operating balance deviated from the Budget Law. The 10.0 percent fall in government’s oil revenues in the first 11 months of 1394 compared to the same period in 1393 also contributed to a 16.6 percent reduction in the development expenditures. The budget deficit also grew by 115.6 percent even though the share of the National Development Fund in oil revenue had decreased from 32 percent to 20 percent. For the financing of its budget deficit, the government relied less on the privatization of state-owned companies and more on utilizing the treasury revolving fund and issuing securities. Consequently, privatization of the state-owned enterprises, which constituted the largest part of the disposal of financial assets in the government’s budgets of recent years, fell by 27.7 percent in the first 9 months of 1394 compared to the same period the year before. In real terms, only 1.9 percent of the disposal of financial assets during 1380-94 took place in 1394, illustrating the slow-down in the privatization of state-owned enterprises. As for cash subsidies under the Subsidy Reform Law, the 1394 Budget Law required the government to eliminate 6 million recipients of cash subsidies, but only 3.3 million eliminated and so, once again, the disbursed cash subsidies exceeded the legislated amount. The balance of payments in 1394 was influenced by factors such as changes in oil revenues and the conclusion of the Joint Comprehensive Plan of Action (JCPOA) agreement between Iran and the so-called group of 5+1 countries. The latest data at the time of writing this report is for the first three quarters of the year, during which the current account balance dropped by 41.0


percent compared to the same period in the year before. This was mainly as a result of a drop in the merchandise trade balance which was in turn due to a more severe contraction of exports compared to imports. The fall in the value of exports but mostly due to a 41.0 percent drop in the value of oil exports during this period. At the same time, the non-oil trade balance deficit fell from USD22.4 billion to USD13.6 billion due to the relative stability of non-oil exports and the 19.0 percent drop in non-oil imports. With the sole exception of the services account whose deficit fell relative to the year before, items on current account balance did not experience much change. The main factor that prevented a severe worsening of the balance of payments in the first three quarters of 1394 was the considerable improvement in the net capital account. Meanwhile, the net capital inflows turned positive for the first time in ten years and reached over USD2 billion, mainly as a result of the JCPOA and the ensuing optimism about economic prospects.The Iranian rial (IRR) strengthened against the US dollar (USD) during the first quarter of 1394 as a result of the gradual firming up of oil prices and renewed optimism about reaching a nuclear deal with the group of 5+1. But in fact after the achievement of the JCPOA on July 14, 2015, that trend reversed course and the IRR weakened against the USD up to the Implementation Day of the JCPOA on January 16, 2016, partly due to the steep falls in oil prices. Reduced speculative activities in the foreign exchange market in post-Implementation Day, as well as the gradual increase in oil prices and increased access of the Central Bank of Iran (CBI) to its foreign-exchange reserves, resulted in the strengthening of the IRR through the end of 1394.The primary objectives of the CBI in 1394 were price stability, economic growth and financial stability. During the year liquidity grew by 30 percent to reach IRR10,171 trillion as a result of 17.1 percent increase in monetary base and 11.0 percent increase in M2 money multiplier. The stimulus package was responsible for 5.0 percentage points of that 30.0 percent liquidity growth. During the first 10 months of 1394, balance of deposits in both IRR and foreign currencies grew by 21 percent compared to the end of 1393 and reached IRR9,914 trillion, showing a 26.4 percent increase over a 12-month period. During the same period, extended facilities grew slower than deposits after deducting legal reserves. Consequently, the loan-to-deposit ratio (after deducting reserves) continued its downward trend. In 1394, banks’ extended facilities grew by 22.2 percent and reached IRR4,173.2 trillion. Given the annual inflation rate of 11.9 percent in 1394, the real growth rate of granted loans was 9.2 percent, much below the 25.0 percent in the year before. Banks’ extended facilities in the form of working capital to all economic sectors reached IRR2,634.3 trillion, or 63.1 percent of the total, registering a 27.2 percent growth from the previous year, and indicating an increase in the share of working capital in total facilities. Another declared objective of the CBI is to bring unauthorized financial institutions under its supervision. They are estimated to be around 6,000 and hold about 20 percent of the M2 liquidity, most of it by fewer than 10 of them. In the current environment

in which interest rates on bank deposits are substantially above the inflation rate, the activities of these unauthorized financial is a major hindrance to reducing nominal interest rates. Given the CBI’s increased determination in recent years to bring these institutions under its supervision, and as the public becomes more aware of the risks associated with these unauthorized institutions, it seems their influence on the money market has gradually weakened and this trend is expected to continue.Inflation continued its downward trend for the third year in a row. The monthly point-to-point inflation rate, as measured by changes in the Consumer Price Index (CPI) in urban areas, continued its downward trend to reach 8.3 percent in the last month of 1394 (April 2016). Likewise, the annual inflation rate continued its decline and reached 11.9 percent for the year as a whole, registering a 3.7 percentage points decline from its level in 1393. Important factors contributing to this decline included a 2.2 percent drop in M1 money in the first 10 months of 1394 and low global inflation rates that meant low inflation rate in tradable goods. The reduction in the CPI inflation rate was also helped by the fall in the Producer Price Index (PPI) inflation rate which was itself influenced by low GDP growth.The capital market, which is dominated by the stock market, experienced a rather different circumstance in 1394 compared to its previous year. The overall index of the Tehran Stock Exchange (TSE) and its Total Price Index rose by 28.3 percent and 13.1 percent, respectively. In 1394 the total volume of TSE transactions jumped by 37.9 percent. Participation bonds also experienced a substantial growth, both in terms of value and volume of transactions. The first tranche of Islamic Treasury bills that was issued for the first time in 1394, matured and was settled in winter and market determination of their interest rates was an important milestone in the Iranian debt market. Institutional investors accounted for 50.5 percent of the buy value and 53.8 percent of the sell value of these exchanges. The chemical and automotive groups had the greatest impact on the overall TSE index, accounting for around 6,000 of the 18,000 jump in the index. “Medical and Optical” group was the best performing group with 774.9 percent growth rate and “Plastic and Rubber” group was the worst performing group with a negative growth rate of 21.7 percent.Iran’s unfavorable business environment, that had been a major deterrence to the inflow of the much needed foreign direct investment, showed signs of improvement in 1394. According to the World Bank’s “Ease of Doing Business” report, in 2016 Iran’s rank improved to reach 118th among the 189 countries it considered. Likewise, according to the World Economic Forum’s “Global Competitiveness Report 2015-16”, Iran ascended 9 places to 74th among 140 countries. The Heritage Foundation’s “Index of Economic Freedom” report in 2016 also indicates that Iran ranked 171th among 178 countries surveyed, which is slightly better than in previous years. It gives low grades to Iran’s investment freedom, fiscal freedom and property rights but praises it for government spending, financial freedom and business freedom. The “Corruption Perception Index” report of 2015 ranks Iran 130th among its sample of 167 countries.

1. Real SectorSoon after the current government came to office in 5/1392 and started the implementation of its economic policies, Iran’s GDP appeared ready to end its contraction of the preceding quarters and in the first quarter of 1393 ended eight consecutive quarters of negative growth rates. The GDP grew by 3.8 percent

during the first three quarters of 1393, but sharp declines in international oil prices in the fall of 1393 severely checked that growth. Figure 1 illustrates GDP quarterly growth rates during 1388-1394.


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Figure 1 - GDP Level and its Quarterly Point-to-Point Growth Rate at Constant Prices*

Source: Economic Trends, Central Bank of Iran, and Report of Economic Growth Rate in 1394, Statistical Center of Iran* GDP growth rate for 1394 is based on data released by the Statistical Center of Iran (SCI) for preceding years they are based on data from the Central Bank of Iran.

Q1 Q1 Q1 Q1 Q1 Q1 Q1Q2 Q2 Q2 Q2 Q2 Q2 Q2Q3 Q3 Q3 Q3 Q3 Q3 Q3Q4 Q4 Q4 Q4 Q4 Q4 Q4

Direct and indirect dependency on oil revenues, the sharp drop in oil prices, structural problems in the money market and deficiencies in the capital market exacerbated the existing credit crunch and weak demand and brought about difficult economic conditions. This led to a considerable reduction of the GDP growth rate in the winter of 1393. The fall in oil revenues also led to a reduction in government development expenditures since the fall of 1393 and resulted in sharp contractions of the construction sector. The low per-capita income at the end of two years of recession in conjunction with the effect of a severe decline in oil prices on aggregate demand shifted the economy from a supply side contraction in 1391 and 1392 to demand side contraction in 1394 as evidenced by high inventory levels in many production units. Under such circumstances, positive prospects of reaching a nuclear deal resulted in the expectation that prices of durable goods would fall after lifting of sanctions thus justifying the postponement of demand for durable goods. As a result, weak

demand left the government to resort to providing short-term facilities as part of a demand stimulus package in the fall of 1394. Granting facilities on easy terms to purchase domestically produced vehicles as well as durable goods was one of the major elements of that demand stimulus package. Despite much criticism, the package somewhat stimulated GDP growth, especially in the industry sector.According to preliminary estimates by the Statistical Center of Iran (SCI), in 1394 growth rates of the GDP and non-oil GDP stood at 1.0 percent and 0.9 percent, respectively, as exhibited in Table 1. Among all three sectors of the economy, only the value-added in the industry sector (including manufacturing and mining and oil) contracted, whereas agriculture and services sectors experienced positive growth rates. In 1394, the agriculture sector with a positive growth rate of 5.4 percent was the main contributor to the positive growth rate of GDP, while the services sector with the highest share in the GDP only experienced a 0.2 percent growth rate.

Table 2 illustrates the growth rates of expenditure side components from 1390 to 1394. In both 1391 and 1392 the economy suffered from recession and in addition to a sharp decline in gross fixed capital formation and a slight drop in government spending, even private consumption expenditures

contracted slightly. In 1394 gross fixed capital formation fell again drastically whereas private consumption expenditures rose. Government expenditures also experienced positive growth in all quarters and increased by 7.3 percent during the year.

Table 1 - Real Growth Rates of GDP and its Components at Constant Prices* (percent)

1390 1391 1392 13931394

First 3 months First 6 months First 9 months YearAgriculture -0.1 3.7 4.7 3.8 8.4 6.6 5.4 5.4Manufacturing 2.6 -18.3 -4.7 4.9 -3.1 -2.4 -3.1 -2.2

Oil -1.0 -37.4 -8.9 4.8 - - - -Manufacturing and Mining 5.0 -6.4 -2.9 5.0 - - - -

Services 5.8 1.1 -1.5 2.4 0.0 -0.1 0.0 0.2

GDP 4.3 -6.8 -1.9 3.0 0.5 0.8 0.6 1.0Non-Oil GDP 5.4 -0.9 -1.1 2.8 0.4 0.7 0.7 0.9

Source: Economic Trends No.82, Central Bank of Iran (CBI); Report of Economic Growth Rate in 1394, Statistical Center of Iran (SCI)*Data for 1390-1393 are from the CBI at basic prices (1383=100), while data for 1394 are from the SCI at market prices (1376=100).

Table 2 - Growth Rates of Gross Domestic Expenditure’s Components at Constant Prices* (percent)

1390 1391 1392 13931394

First 3 months First 6 months First 9 months YearPrivate Consumption Expenditures 4.2 -1.7 -1.0 3.1 4.0 1.8 2.2 2.5Public Consumption Expenditures -3.4 -7.2 1.6 2.7 7.3 7.3 7.3 7.3Gross Fixed Capital Formation 3.5 -23.8 -6.9 3.5 -10.1 -12.6 -14.9 -15.6

Machinery 6.6 -35.7 -16.1 8.7 -7.7 -12.0 -13.9 -15.0Construction 1.0 -13.8 -1.1 0.7 -13.5 -13.4 -16.3 -16.4

Source: Economic Trends No.82, Central Bank of Iran (CBI); Report of Economic Growth Rate in 1394, Statistical Center of Iran (SCI)* Data for 1390-1393 are from the CBI at 1383 constant prices, while data for 1394 are from the SCI at 1376 constant prices.


1.2 - OilIran’s crude oil production that averaged more than 4 million barrels per day (bpd) during 1382-1386 started to fall in 1387 as a result of sanctions and reduced investments in maintaining the production capacity. Consequently, oil exports that had reached 2.7 million bpd in 1384, gradually declined to below 1.5 million bpd in the second half of 1392. As shown in Figure 2, oil production and export started to increase in the second half of 1393 and during 1394Q1 the production grew by 2.5 percent and averaged 3.1 million bpd, albeit still 3.8 percent lower than the production in 1393Q1. Production kept increasing and reached 3.3 million bpd in fall of 1394 and, according to OPEC

reports, 3.38 million bpd in the last quarter of the year.During the summer and fall of 1394, Iran’s oil exports reached 1.55 million bpd. This increase was accompanied by oversupply by USA and KSA on the one hand and lower demand by China and the European countries on the other hand that frustrated a rise in Iran’s oil export revenue. Oil prices fell below USD25 in the winter of 1394. According to CBI, during the first three quarters of 1394 the USD value of Iran’s oil exports dropped by 40.0 percent from the same period the year before to only USD27.1 billion.

Table 3 - Growth Rates of Agriculture Group at 1376 Constant Prices (percent)1394

Year Q1 Q2 Q3 Q4Agriculture Group 5.4 8.4 5.6 3.3 5.5

Farming, Hunting and Forestry 5.4 8.5 5.6 3.3 5.5Fishing 5.5 5.4 5.5 5.5 5.5

Source: Report of Economic Growth Rate in 1394, Statistical Center of Iran (SCI)

Table 4 - Growth Rates of Manufacturing Group at 1376 Constant Prices (percent)1394

Year Q1 Q2 Q3 Q4Manufacturing Group* -2.2 -3.1 -1.7 -4.4 0.6

Manufacturing and Mining 0.0 -1.6 -0.1 -1.3 3.0Manufacturing -0.3 -2.4 -0.5 -0.1 1.6Mining 1.7 2.4 1.8 -7.3 9.9

Oil and Natural Gas 3.6 3.6 3.4 -9.0 16.5Other Mines -3.3 -0.9 -2.3 -2.7 -7.5

Electricity, Gas and Water 3.2 0.4 5.7 -1.1 7.9Construction -16.4 -13.5 -13.3 -21.7 -16.5

Source: Report of Economic Growth Rate in 1394, Statistical Center of Iran* The difference between the subgroups of the Manufacturing in this Table and Table 1 is the result of different classifications by the CBI and SCI.

Figure 2 - Iran’s Average Daily Crude Oil Production and Export and Heavy Oil Price

Source: Economic Trends, Central Bank of Iran and OPEC Monthly Reports

1.1 - AgricultureThe agriculture sector, accounting for a small share of the GDP – no more than 10.0 percent – had high growth rates in all quarters of 1394 and was the main contributor to the GDP’s positive growth in this year. Both subgroups of agriculture, i.e., “horticulture, hunting, and forestry” and “fishing” experienced almost equal growth rates and eventually grew by 5.4 percent in

1394. One of the major challenges faced the agricultural sector in this year was the absence of an efficient irrigation systems. Traditional and inefficient practices in agriculture had led to the consumption of about 90 percent of the country’s annual water consumption by this sector, which is not justified by agriculture low value-added.


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1.4 - Automotive IndustryFollowing the lifting of sanctions on Iran’s automotive industries, imports of raw and intermediate goods for auto production increased and production and sales jumped by 53.4 percent in 1393. Following the jump, heightened expectation

about imports of higher quality foreign cars in the aftermath of the sanctions led to the postponement of demand in 1394 and a production fall of 13.6 percent. Table 6 presents data on automotive production in 1390-94.

1.5 - Steel IndustryVast reserves of iron ore, massive energy resources, access to international waters, abundant labor force and a strong domestic market are among factors favoring steel production in Iran. Yet, Iran has not enjoyed a high rank among global steel producers.

Table 7 exhibits Iran’s crude steel production during 1388-1394 and shows that after several years of growth, in 1394 production dropped by 2.9 percent to reach 16.2 million tons.

In recent years, steel production grew even as GDP was contracting. With the lifting of international sanctions steel export is expected to increase. According to reports by Iran’s Mines, Mining Development and Renovation Organization (IMIDRO), exports of crude steel and steel products in 1394

grew by 4.0 percent to reach 4.0 million tons, 2.2 million tons of finished steel products and 1.799 million tons of ingot steel, while imports of crude steel and steel products fell by 1.0 percent to reach 4.4 million tons.

1.6 - Housing and Construction Iran’s housing market recession began in the mid-1392 and was still present at the end of 1394. This relatively long

recession took place following the sharp jump in housing prices in 1390 and 1391 due to the previous government’s

1.3 - PetrochemicalsIran’s petrochemical industry enjoys comparative advantages including the country’s vast reserves of oil and gas, ease of access to land and sea routes, availability of skilled labor and a sizeable domestic market, and yet the size and product diversity of this sector is much below those in industrial countries. From 1384 to 1390 this industry grew by 21.0 percent a year. But its growth slowed down and turned negative during 1391-1392 due to poor policies and the tightening of international sanctions and so in 1391 and 1392 production contracted by respectively 7.2 percent and 5.8 percent, and the USD value of exports fell by 30.1 percent and 18.2 percent. The IRR value of domestic

sales experienced a considerable increase though, thanks to high domestic inflation rates and sanction related constraints on exports. With the easing of sanctions, production rose in 1393, registering a 17.8 percent growth. Official data for 1394 is not available as of the writing of this report but unofficial sources indicate 6.0 percent and 26.0 percent growth in production and exports, respectively. In 1394 about 60 percent of production was exported - from less than 50 percent in the preceding two years - and the export volume is expected to increase further in coming years. Table 5 exhibits the performance of Iran’s petrochemical industry during 1389-93.

Table 5 - Performance of Iran’s Petrochemical Industry

Level Percent Change

1392 1393 1389 1390 1391 1392 1393

Sum of Exports and Domestic Sales (thousand tons) 27,352 32,219 29.6 10.2 -7.2 -5.8 17.8Value of Exports (USD millions) 9,869 10,273 26.4 31.3 -30.1 -18.2 4.1Value of Domestic Sales (IRR billion) 313,765 333,489 44.7 65.8 55.7 79.5 6.3

Source: Annual Review 1393, Central Bank of Iran

Table 6 - Number of Vehicles Produced in Iran

Thousand Units Percent Change

1390 1391 1392 1393 1394 1393 1394

All Vehicles 1,653 924 737 1,130 977 53.4 -13.6Passenger cars and Vans 1,612 907 729 1,109 966 52.1 -12.9Heavy vehicles 41 17 8 21 11 176.2 -47.1

Source: Iran Vehicles Manufacturers Association Website

Table 7 - Crude Steel Production in Iran (in thousand tons)

1388 1389 1390 1391 1392 1393 1394

Crude Steel (thousand tons) 10,858 12,509 13,270 14,362 15,627 16,692 16,201Growth (percent) 4.0 15.2 6.1 8.2 8.8 6.8 -2.9

Source: World steel association, 1388 to 1394 Monthly Reports


Table 8- Growth Rates Services Group at 1376 Constant Prices (percent)

1394

Year Q1 Q2 Q3 Q4

Services Group 0.2 0.0 -0.3 0.4 0.8Trade, Restaurants and Hotels 0.1 -0.7 -0.3 0.3 1.0Transport, storage and Communications -6.5 -5.2 -6.4 -9.0 -5.4Financial Services -3.9 -7.2 -1.2 -4.7 -2.8Real Estate and Professional Services 1.8 1.8 0.7 3.6 1.0Public Services 6.9 5.7 5.4 7.7 8.8Social, Personal and Domestic Services 2.3 3.3 2.0 2.7 1.1

Source: Report of Economic Growth Rate in 1394, Statistical Center of Iran

expansionary policies, absence of a disciplinary monetary policy, misuse of oil revenues and generally inappropriate housing policies. The unprecedented increase in housing prices by mid-1392, acceleration of inflation, contraction of the GDP and the construction of a large number of new housings led to disequilibrium in the housing market and ignited one of the most severe recessions in the past three decades. The implementation of the second phase of the Subsidy Reform Plan and the escalation of international sanctions against Iran led to an increase in the cost of construction and a decrease in the construction of new buildings that pushed up housing prices. The government’s massive intervention in the construction and housing market during 1386-1392 coupled with activities of construction companies affiliated with banks drove away the private sector from new investments in this sector and pushed the market far away from equilibrium. In addition, both

luxurious and low-quality1 housing units were over-supplied while demand was increasing for medium size units.Figure 3 shows investment in newly-started buildings as well as the number of construction permits in urban areas. An examination of these two variables reveals the reluctance of investors to enter the housing market during the past 3 years. The number of construction permits issued by municipalities fell continuously since the end of 1392 and fewer investors applied for these permits. Following a 32 percent drop in the number of issued construction permits in 1393, it fell by another 12 percent during the first three quarters of 1394 compared to the same period in the year before. During these three quarters, private investment in newly-started buildings in urban areas dropped by 20 percent in nominal terms compared to the same period in 1393 and reached IRR117.5 trillion.

1.7 - ServicesThe services sector value-added was stable in all quarters of 1394 and its growth rates were hovering around zero, ranging from minus 0.3 percent in the summer and positive 0.8 percent in the winter. Among services’ subsectors, “public services, training

and health” and “social, personal and household services” experienced the highest growth rates while “transports, storage, and communication” and “financial and monetary institutions’ services” experienced the lowest.

2. Labor MarketAccording to the latest census conducted by the Statistical Center of Iran (SCI) the average age of Iran’s population is about 30 years, pointing to Iran as a country with fairly young population and making job creation an important issue. In

order to have an accurate assessment of the labor market in Iran, unemployment rate alone does not suffice and indicators such as economic participation rate and underemployment should also be considered. Table 9 shows the main indicators

Figure 3 - Private Sector Investment in Newly-started Buildings and Number of Construction Permits in Urban Areas

Source: Economic Trends, Central Bank of Iran


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of the labor market by gender and urban/rural dichotomy in 1394. In 1394, 63.2 percent of males and 13.3 percent of females were economically active, resulting in a 38.2 percent economic participation rate. 11.0 percent of the economically active population, i.e., about 2.7 million individuals, were unemployed. As in previous years, females’ unemployment rate

was much higher than the males’ and the unemployment rate in urban areas was much higher than in rural areas. Furthermore, the 23.3 percent unemployment rate of individuals in the 15-29 year age group underlines the undesirable conditions of youth’s employment. Besides, 9.8 percent of people were underemployed.

In 1394, 10.9 million individuals were employed in the services sector, 7.1 million in industry, and 4.0 million in agriculture.

As shown in Figure 4, the services sector has accounted for an average of 47.2 percent of the employed during the past 10 years.

An interesting aspect of Iran’s employment is that the number of economically active population has not changed much during 1384-92 but the unemployment rate has decreased by 1.1 percentage point, mainly because of a considerable drop in participation rate rather than job creation. The fall in participation rate is partly due to an increase in the number of university graduates that have exited the active population after getting disappointed with finding a suitable job. Besides, the excessively

low female participation rate has caused the overall economic participation rate to be lower than the average for developing countries. As shown in Figure 5, this rate in 1394 increased by 1 percentage point. In 1394 the number of the employed increased by 664 thousand and that of the economically active population increased by 883 thousand, resulting in an employment rate of 11.0 percent. The number of the underemployed also rose by approximately 108 thousand to reach 2.2 million.

Table 9 - Labor Force Indices in 1394

Total Male Female Urban Rural

Participation of 10 Years Old and OverRate (percent) 38.2 63.2 13.3 37.5 40.0No. (million people) 24.7 20.4 4.3 17.9 6.8

Unemployment of 10 Years Old and OverRate (percent) 11.0 9.3 19.4 12.2 8.1No. (million people) 2.7 1.9 0.8 2.2 0.6

Unemployment of 15-24 Years Old YouthRate (percent) 23.3 19.1 40.2 25.5 17.6No. (million people) 1.6 1.1 0.6 1.3 0.3

The Portion of Population with Underemployment Time (percent) 9.8 10.8 4.5 8.2 13.7Source: Summary Results of the Workforce Survey Project 1394, Statistical Center of Iran

Figure 4 - Economic Sectors Average share of Employment during Last 10 Years

Figure 5 - Some Labor Force Indices (percent)

Source: Workforce Survey Project 1394, Statistical Center of Iran

Source: Statistical Center of Iran


4.1 - General BudgetThe general budget consists of general resources and dedicated revenues. Oil and tax revenues have the biggest share in general resources and usually the share of current expenses is higher than

development expenditures. Table 11 presents the two sides of the legislated general budget for 1394 in some detail.

The labor market was much influenced by the air of optimism in the aftermath of the JCPOA. The number of economically active population increased due to the return of some of the unemployed who were now more optimistic about finding jobs, graduation of students who were extending their formal education as a refuge

from facing unemployment, along with a slowdown in the rate of retirement. These developments pushed up the participation rate and the trend is expected to continue at a faster pace in coming years.

3. SanctionsOn July 14, 2015, Iran and the group of six countries known as the “group of 5+1” agreed on a Joint Comprehensive Plan of Action (JCPOA) whereby in exchange for lifting international sanctions, EU sanctions and the nuclear-related sanctions by US against Iran, Iran would allow higher levels of inspection of its nuclear program and postpone or dismantle certain other parts of it. Milestones in this agreement included Adoption Day on October 18, 2015 when participants began taking steps to implement their commitments, and Implementation Day of January 16, 2016 when upon verifying that Iran had done its part of the agreement, the UN, US, and EU lifted nuclear-related sanctions on Iran.JCPOA reestablished Iran’s access to its frozen assets overseas

and also opened the door to foreign investors other than American companies that remain barred from Iran as a result of sanctions unilaterally imposed by US in 1995 unrelated to the nuclear issues. But complications in US regulations relating to trade with, and investment in Iran, and fearful of penalties imposed by the United States on banks that had been found to have broken US laws, most international banks remained hesitant to re-enter Iran. Measures were taken by all sides to the JCPOA, including meetings of US officials with government representatives and bank executives in more than a dozen countries, to clarify US laws and alley some of international banks’ unfounded fears in working with Iran.

4. Government BudgetIn the budget bill for 1394, based on the assumption that oil prices would on average be around USD72 per barrel, the government assumed it will receive around IRR736.2 trillion from its disposal of non-financial assets (mostly oil revenues), and so when oil prices started their sharp declines, the proposed budget had to be revised. Given wide uncertainties, the Budget Law was eventually legislated with two ceilings, one based on oil prices averaging USD45 per barrel, and the other in which expenditures were allowed to overrun to the second ceiling

budget if revenues were higher. This form of budgeting was unusual and exposed government’s fiscal situation vulnerable to external shocks. The general government budget stood at IRR8,467 trillion, registering a 5.4 percent growth from its 1393 level, which is lower than the annual inflation rate of 11.9 percent in 1394. Therefore, in 1394, the government became smaller. Table 10 compares Budget Laws of 1393 and 1394.

Table 10 - Main Subdivisions of the Budget Laws of 1393 and 1394 (IRR trillion)

DescriptionBudget Law of 1393

Growth in Comparison

to 1392 (percent)

First Ceiling

of Budget Law of 1394

First Ceiling Growth in

Comparison to 1393

(percent)

Second Ceiling

of Budget Law of 1394

Second Ceiling

Growth in Comparison

to 1393 (percent)

General government budget* 8,033.5 10.4 8,305.0 3.4 8,467.4 5.4General budget 2,350.1 -0.4 2,581.7 9.9 2,744.1 16.8

General resources 2,111.7 0.3 2,200.4 4.2 2,362.8 11.9Dedicated revenues 238.4 -6.9 381.3 59.9 381.3 59.9

Budget of State-owned companies, Banks and Profit institutions affiliated to government

5,971.3 11.4 6019.4 0.8 6,019.4 0.8

Source: Government Budget Laws* General government budget in 1394 for first ceiling was not mentioned in the budget law and is estimated based on sum of general budget and State-owned companies, Banks and Profit institutions affiliated to government budget minus double counting of second ceiling.


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Table 11 - Sub-sections of the General Budget in the Annual Budget Law of 1394 (IRR trillion)

Resources First ceiling Second ceiling Expenditures First ceiling Second ceiling

Revenues 1,288.5 1,288.5 Expenses (current) 1,630.2 1,747.2Tax revenues 883.9 883.9 Compensation of employees - 649.5Proceeds of State-owned properties 217.9 217.9 Cost of properties - 1.5

Proceeds of sales of goods and services 68.7 68.7 Use of goods and services - 261.8

Proceeds of crime and damage 67.1 67.1 Subsidies - 159.2Other 50.9 50.9 Grants - 38.4

Social welfare - 494.2Other costs - 142.5

Operating Balance -341.7 -458.7

Disposal of non-financial assets 564.8 727.3 Acquisition of non-financial assets (development expenditures) 473.9 508.9

Receipts from crude oil and oil products 537.4 699.8 Construction - 319.1

Receipts from movable and immovable assets 17.5 17.5 Machinery and Equipment - 128.6

Receipts from disposal of projects related to acquisition of non-financial assets

10.0 10.0 Other fixed assets - 1.4

Inventory use - 1.1Precious items - 0.0Land - 8.5Other non-produced assets - 50.1

Net disposal of non-financial assets 91.0 218.4Disposal of financial assets 347.0 347.0 Acquisition of financial assets 96.3 106.7

Sales of bonds and treasury bills 110.0 110.0 Repayment of bonds - 15.9

Use of foreign loans 0.1 0.1 Repayment of foreign loans - 8.1Receiving the loan's principal 3.5 3.5 Repayment of bank loans - 1.1Disposal of state-owned companies 176.0 176.0 Credit related to disposal of

stock - 70.5

Last year payments return 9.7 9.7 Unpaid obligations from previous years - 10.4

Use of the National Development Fund 42.8 42.8 Foreign cultural and

economical contributions - 0.8

Other 5.0 5.0Net disposal of financial assets 250.7 240.3Total government general resources 2,200.4 2,362.8 Total government general expenditures 2,200.4 2,362.8Dedicated revenues 381.3 381.3 Expenditures from dedicated revenues 381.3 381.3

General budget Resources 2,581.7 2,744.1 General budget Expenditures 2,581.7 2,744.1

Source: The Annual Budget Law, 1394

According to the first ceiling legislated budget, operating balance deficit was set at IRR341.7 trillion. Oil revenues were to finance IRR473.9 trillion of development expenditures and IRR91 trillion of the operating balance deficit. Therefore, oil revenues were still looked at as revenues that could be used to finance current expenditures and not only development expenditures.In the Budget Law of 1394, as a routine practice, a proportion of operating balance deficit was to be financed through the disposal of financial assets. Hence, the issuance of Islamic Treasury bills and government bonds was increased in the Budget Law by 83

percent based on the second ceiling while privatization fell by 24 percent. Accordingly, sale of bonds and treasury bills has become an increasingly more important instrument in financing of the budget deficit. Dedicated revenues grew by 60 percent compared to the budget of 1393 and its 10 percent share increased to 15 percent in 1394 budget, signaling an increase in the authority of state-owned institutions and corporations in their own budgets. The share of tax revenues in the Budget Law of 1394 was higher than oil revenues, but this was more due to the fall in oil prices than a deliberate act.

4.2 - Government Fiscal PerformanceDuring the first eleven months of 1394, the government earned IRR653.4 trillion in tax revenues, accounting for 73.9 percent of the approved IRR883.9 trillion for this item. Other current

revenues were IRR241.2 trillion, accounting for 87 percent of the legislated IRR404.6 trillion. Besides, government current expenditures were IRR1,485 trillion, approximately 91.1


percent of the approved. The deficit of operating balance in the same period was IRR597.4 trillion which was higher than the legislated IRR341.7 trillion for the whole year.During the first eleven months of 1394, oil revenues fell by 10 percent compared to the same period in 1393, and accounted for 93.8 percent of the legislated amount. Development expenditures reached IRR211.7 trillion, lower than the legislated

IRR473.9 trillion. Actual oil revenues were in line with the legislated amount according to the first ceiling. However, given the excessive imbalance between current expenditures and revenues, the government diverted a major part of oil revenues from development expenditures in order to finance the operating balance deficit. Table 12 illustrates the fiscal performance of the government and budget deficit for 1393 and 1394.

Generally, the budget deficit is financed by the net disposal of financial assets. In the first eleven months of 1394 the net disposal of financial assets stood at IRR302.8 trillion, 20.8 percent higher than the legislated amount and registering a 115.6 percent increase over the same period in the year before.In 1394, a significant change in the components of disposal of financial assets took place. In the past, privatization constituted the largest share of the disposal of financial assets, but during the first three quarters of 1394 it fell by 27.7 percent compared to the same period in 1393 to reach only IRR64.9 trillion.

During the same period, “others” subgroup of the disposal of financial assets, in which the revolving fund of the treasury has the highest share, reached IRR83.2 trillion or 54.8 percent of the disposal of financial assets. The revolving fund of the treasury was required to be cleared by the end of 1394, consequently the share of “others” is expected to fall by the end of the year, and the issuance of the Islamic treasury bills may have been used to clear a significant part of the revolving fund of the treasury. Due to the sanctions, in 1394 the government was again unable to finance its budget deficit through foreign borrowing.

4.3 - PrivatizationAccording to the general policies of Article 44 of the IRI constitution, privatization of state-owned companies should have been completed by the end of 1393, but it did not, and so was again included in the budget of 1394. Privatization of state-owned companies started in 1380 and by the end of 1394, out of all privatized state-owned companies, 48.5 percent had been privatized through the stock exchange, 12.7 percent through the

OTC, 38.5 percent through auction, and 0.2 percent through direct negotiation. According to the Iranian Privatization Organization, in 1394 a sum of IRR105.2 trillion of privatization revenues was deposited in the treasury, indicating a 35.8 percent drop compared to 1393. IRR91.9 trillion of this revenue was deposited in the treasury’s general income account, covering 63 percent of the legislated IRR145 trillion.

4.4 - National Development FundThe National Development Fund (NDF) was established to allocate a proportion of oil and gas revenues to sustainable and productive economic activities and also preserve a part of it for future generations. Any use of NDF funds by the government as well as exchanging its foreign exchange funds to IRR are strictly prohibited in the Fund’s article of association. However, the government converted a part of NDF resources and used it to finance its expenditures in the budget of 1394. NDF’s share of oil and gas revenues was 20 percent in 1394, 12 percentage

points below the legislated share in the Fifth National Development Plan.According to the Sovereign Wealth Fund Institute’s report, Iran’s NDF with assets valued at USD62 billion ranked 24th among 79 sovereign wealth funds. However, the Fund’s assets stood at USD68.2 billion at the end of 1393 according to the latest NDF report. The Fund transparency score was 5 out of 10, putting Iran in the 31st place.

4.5 - Subsidy Reform PlanIn the Budget Law of 1394, a sum of IRR543 trillion was legislated to the subsidy reform plan, to be financed by IRR480 trillion from increase in the prices of energy carriers and IRR63 trillion from general budget resources and the elimination of bread and electricity subsidies. According to the subsidy reform law, the government was allowed to spend up to 60 percent of the plan’s resources on cash or non-cash subsidies

to households. Given that the government was supposed to cut off the cash subsidies of 6 million individuals based on the Budget Law of 1394, the cash and non-cash subsidies share of resources remained higher than the plan’s target, reaching 72 percent. Table 13 presents the resources and uses of the subsidy reform plan in the Budget Law of 1394.

Table 12 - Government Fiscal Performance in 1393 and 1394 (IRR trillion)

Description Eleven-month 1393

Eleven-month 1394

Percentage change 1394 to 1393

Performance (approval percentage)

Total revenues 1,379.8 1,401.2 1.6 75.6Tax revenues 609.8 653.4 7.2 73.9Receipts from crude oil and oil products 557.9 503.9 -9.7 93.8Other government revenues 209.6 241.2 15.1 87.0Receipts from movable and immovable assets 2.5 2.7 8.3 9.8

Total expenditures 1,517.0 1,697.2 11.9 80.7Current expenditures 1,263.0 1,485.4 17.6 91.1Development expenditures 253.9 211.7 -16.6 44.7

Budget balance (Operating and non-financial balance) -140.5 -302.8 115.5 120.8Source: “Selected Economic Indicators”, Central Bank of Iran, 11/1394Note: The difference between budget balance and balance of revenues and expenditures is due to Revolving funds.


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Table 13 - Annual Resources and Uses for Subsidy Reform Plan in the Budget Law of 1394 (IRR trillion)

ResourcesFrom increase in prices 480From government budget 63Total 543

UsesPayments to families in cash and kind 390Support for production, Public transportation, and improvement and optimization of energy use 52Housing loans interest subsidies 13Healthcare system 48Youth employment programs 40Total 543

Source: The Budget Law of 1394

Table 15- Performance of the Organization of Targeted Subsidies from Beginning to 27/11/1394 (IRR trillion)

Sources 2,337.5Rising Energy prices 1,615.7From government budget 571.6

For cash payments 528.3For organizations 43.3

Row 25 of table19 of budget law of 1392 25.5Remainder of the Revolving fund of Central Bank 57.0Remainder of the receipts from treasury 2.3Receipt for compensatory gifts 65.5Expenditures 2,339.1Payments in cash 2,135.0Payments in kind 10.5Compensatory cost 65.5Article 7 - B, Social security insurance 8.4Healthcare 64.6Support for production, Public transportation, and improvement and optimization of energy use 55.2

Source: dolat.ir/NSite/FullStory/News/?Serv=3&Id=275798

Table 14 - Performance of the Subsidy Reform Plan During the first 8 months of 1394 (IRR trillion)

8-month performance 8-month performance (approval percentage)

RevenuesRising Energy prices 234.7 48.9ExpendituresPayments to families 280.0 71.8Support for production 46.0 88.5Housing loans interest subsidies 0.0 0.0Healthcare system 8.7 18.1youth employment programs 0.0 0.0

Source: eghtesadonline.com/fa/content/118170

4.6 - The Performance of Subsidy Reform PlanAccording to the Deputy Minister of Cooperatives, Labor and Social Welfare, 6 million individuals should have been eliminated from receiving cash subsides in 1394, but only 3.3 million were actually cut off. As a result, government expenditures on cash subsidies exceeded the legislated amount. IRR35 trillion was deposited in the households’ accounts per

month. Therefore, the government failed to meet the budget target on cash subsidies reduction and was unable to meet its other planned activities. Table 14 exhibits the government’s performance regarding the subsidy reform plan in the first 8 month of 1394.

From the start of the subsidy reform plan implementation on December 19, 2010 through February 16, 2016, its total resources and expenditures stood at IRR2,337.5 trillion and IRR2,339.1, respectively. Table 15 illustrates resources and expenditures of the subsidy reform plan up to 11/1394. It can be seen that the receipts of the Organization of Targeted Subsidies

from the increase in price of energy carriers totaled IRR1,615.7 trillion, while the cash subsidies paid to households were IRR2,135.0 trillion. Therefore, the increase in price of energy carriers covered only 69% of the total cost of subsidy reform plan. As a result, IRR721.8 trillion was sourced from other resources, resulting in an increase in liquidity and inflation.


Figure 6 illustrates quarterly data on the volume and value of oil exports in 1393-94 and shows that despite exports increases

in the second and third quarters of 1394, prices falls were such that oil revenues dropped considerably.

During the first three quarters of 1394, the non-oil trade balance deficit fell from USD22.4 billion to USD13.6 billion due to the relative stability of the value of non-oil exports and a 19 percent drop in the USD value of non-oil imports. With the exception of the services account, other current account components did not experience much change. The main factor that prevented a severe worsening of the balance of payments in the first three quarters of 1394 was the considerable improvement in the net capital account compared to the same period in 1393. As shown in Figure 7, capital

account has been mostly negative during the past decade and during 1384-93 net capital outflow totaled USD107 billion. In 1394, however, net capital account turned positive and in the first three quarters totaled USD2.1 billion, mainly because of JCPOA and the subsequent optimism about Iran’s economic outlook. Note, however, that errors and omissions in the balance of payments statistics during the first three quarters of 1394 are much larger than in the preceding three years, undermining the accuracy and transparency of the accounts.

5. Balance of PaymentsIn 1394 Iran’s balance of payments was influenced by JCPOA and changes in oil prices and exports volumes. As shown in Table 16, during the first three quarters of 1394 the current account surplus fell by 41 percent, mainly due to the substantial

drop in merchandise trade balance. During these three quarters both imports and exports fell, but the fall was sharper in the case of exports, mostly as a result of a 41 percent drop in oil exports.

Table 16- Balance of Payments (USD million)

1391 1392 1393First 9 Months

1393 1394 Percentage changeCurrent Account Balance 23,423 26,440 15,861 16,869 9,953 -41.0

Goods Account 28,559 31,970 21,392 20,691 11,801 -43.0Oil Goods Account 65,406 61,771 51,404 43,103 25,382 -41.1Non-oil Goods Account -36,847 -29,801 -30,012 -22,412 -13,581 -39.4Exports (f.o.b.) 97,271 93,124 86,471 69,085 50,384 -27.1

Oil Export 68,058 64,882 55,352 45,891 27,093 -41.0Non-oil Exports 29,213 28,243 31,119 23,194 23,291 0.4

Imports (f.o.b.) 68,712 61,155 65,079 48,394 38,583 -20.3Gas and Oil Products 2,652 3,111 3,948 2,788 1,711 -38.6Other Goods 66,060 58,044 61,131 45,606 36,872 -19.2

Services Account -7,307 -7,137 -6,985 -4,999 -3,042 39.1Income Account 1,661 1,066 943 797 786 -1.4Current Transfers 510 541 511 380 408 7.4

Capital and Financial Account Balance -6,664 -11,547 -1,664 -4,590 2,070 145.1Errors and Omissions -4,546 -1,703 -5,635 -3,957 -8,255 -108.6Overall Balance (Change in international reserves) 12,213 13,189 8,561 8,322 3,768 -54.7

Source: “Selected Economic Indicators” of 1391-1394, Central Bank of Iran

Figure 6 - Oil Exports Value and Volume

Source: “Selected Economic Indicators”, Central Bank of Iran


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Figure 7 - Capital Account Balance (USD billion)

Source: Selected Economic Indicators, Central Bank of Iran* First 9 months only.

5.1 - Goods ExportsCustoms data indicate that in 1394 non-oil exports - including petrochemicals and gas condensates, but excluding oil, gas, and suitcase trade - decreased by 16.1 percent, mainly due to the

52.4 percent fall in the value of natural gas condensates exports. Table 17 illustrates the value of non-oil exports from 1392 to 1394.

Table 17 - Non-oil Exports including Natural Gas Condensates

Value (USD millions) Percentage change

1392 1393 1394 1393 1394Gas Condensate 10,295 14,005 6,664 36.0 -52.4Petrochemical Products 10,806 14,488

35,750*34.1

-2.2Other Goods 20,746 22,067 6.4Total 41,847 50,560 42,414 20.8 -16.1

Source: Islamic Republic of Iran Customs Administration, Preliminary foreign trade statistics for 1394*Sum of Petrochemicals and Other Goods

Major export items in 1394 were petroleum gases and liquefied hydrocarbon gas mixture valued at USD1.6 billion, liquefied propane at USD1.4 billion, and oil bitumen at USD1.2 billion. These items accounted for 4.4 percent, 4.0 percent and 3.5

percent of the total value of exports, respectively. Major export destinations were, respectively, China, Iraq, UAE, Afghanistan and India. Increased exports to Afghanistan advanced its rank to the third that was taken up by India in 1393.

5.2 - Goods ImportsTable 18 presents statistics on Iran’s merchandise import during 1392-94 and indicates that in 1394 they decreased in both value and weight, respectively by 22.5 percent and 18.5 percent. Main import items were corn valued at USD1,405 million, wheat at USD862 million, soya bean at USD728 million, rice at USD680 million and soya cake at USD672 million. The

value of these items accounted for 3.4 percent, 2.1 percent, 1.8 percent, 1.6 percent, and 1.6 percent of the total value of imports, respectively. China, UAE, South Korea, Turkey and Switzerland were the major sources of imports. The 5th place used to be India’s in 1393.

6. Foreign Exchange MarketThe gradual increase in oil prices from USD43 a barrel in the last quarter of 1393 to USD60 in the first quarter of 1394 and progress in nuclear discussions in the early 1394 led to a downward trend in the USD/IRR free market exchange rate up to the attainment of the JCPOA on in the second quarter of 1394, on July 14, 2015. Then the trend reversed itself mainly as a result of the steep fall in oil prices to USD24 a barrel in

the 4th quarter of 1394. Given the considerable fall in the value of imports in the second and third quarters of 1394 from the same periods in 1393, imports demand is unlikely to have been responsible for the rise of the USD/IRR exchange rate. CBI repeatedly intervened to stabilize the exchange rate by selling foreign exchange, mainly USD, in the market at rates slightly below those in the interbank market to the dismay of economists

Table 18 - Custom Imports

1392 1393 1394Percentage change

1393 1394Weight (thousands tons) 33,684 43,016 35,069 27.7 -18.5Value (USD millions) 49,709 53,569 41,490 7.8 -22.5

Source: Islamic Republic of Iran Customs Administration, Preliminary foreign trade statistics for 1394


Figure 8 - USD/IRR Official and Free Market Exchange Rates and Iran’s Oil Price

Source: Economic Trends, Central Bank of Iran

The gap between the USD/IRR free market and official exchange rates reached its minimum of the past three years in 4/1394 – more precisely, on JCPOA’s attainment on July 14, 2015. Many believe that the time was ripe for the due unification of the two exchange rates but CBI refrained from doing so. The official

exchange rate was increasing at a faster pace during the first five month of 1394 compared to its remaining 7 months, casting doubt on CBI’s determination to implement the exchange rate unification.

Controlling the USD/IRR exchange rate volatility has always been an objective of the CBI. The free market USD/IRR exchange rate was fairly stable and increased by only 5 percent

in 1394. Table 19 exhibits more detailed statistics on free market USD/IRR exchange rate in 1390-94.

Table 19 - Basic Statistics on USD/IRR Free Market Exchange Rates

1390 1391 1392 1393 1394 Percentage change1393 - 1394

Average 12,047 26,078 31,838 32,785 34,481 5.2Maximum 19,148 39,800 36,827 35,700 37,300 4.5Minimum 10,403 15,800 28,950 30,354 32,100 5.8Standard Deviation 1,699 7,420 2,346 1,351 1,342 -0.7

Source: Selected Economic Indicators, Central Bank of Iran; For official rates, and unofficialsources for market rates

who accused it of repeating its previous failed policies. Helped by reductions in speculative demand for foreign exchange in in post-Implementation Day period, coupled by the gradual increase in oil prices and CBI’s increased access to its foreign-exchange reserves, the USD/IRR free market exchange rate

continued to fall in the remainder of 1394. Figure 8 presents trends of the USD/IRR exchange rates in the free and interbank (official) markets, as well as that of Iran’s heavy oil prices from 5/1392 to 12/1394.

Figure 9 - Monthly USD/IRR Official and Free Market Exchange Rates 1394

Source: Selected Economic Indicators, Central Bank of Iran; Unofficial Statistics of Free Market Exchange Rates


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7. Monetary PolicyThe main objectives of CBI in 1394 were price stability, higher GDP growth rates and financial stability. Other issues on its agenda included stabilization of the foreign exchange market, lowering interbank interest rates, providing working capital for production units, expanding housing facilities and strengthening its supervision of financial institutions. The inflation rate was brought down without an appeal to contractionary policies. Liquidity (M2) grew by 30.0 percent, reaching IRR10,171 trillion, as a result of a 17.1 percent increase

in monetary base and 11.0 percent increase in M2 money multiplier. 5 percentage points of the liquidity growth was due to the demand stimulus. Liquidity increase in 1394 mostly led to a rise in quasi-money and increase in CBI’s net foreign assets, contributing to monetary base growth. The rise in the ratios of quasi-money to money and net foreign assets to monetary base are among factors resulting in lowering the inflationary effect of the rise in liquidity and monetary base growth, respectively. Table 20 exhibits monetary aggregates in 1393 and 1394.

Table 20 - Uses of Liquidity and Sources of Monetary Base

Stock (IRR trillion) Growth (percent) Share of Growth (percentage point)

1393 1394 1393 1394 1393 1394Liquidity 7,823.8 10,170.9 22.3 30.0 22.3 30.0

Money* 1,207.6 1,287.0 1.0 6.6 0.2 1.0Quasi-money* 6,616.3 8,884.0 27.2 34.3 22.1 29.0

Monetary Base 1,311.5 1,535.7 10.7 17.1 10.7 17.1Central Bank Net Foreign Assets 1,584.7 1,921.9 -5.6 21.3 -7.9 25.7Central Bank Net Claims on Public Sector 33.3 124.6 -14.0 274.2 -0.5 7.0Central Bank Net Claims on Banks 858.0 836.1 42.4 -2.6 21.6 -1.7Net of Other Items -1,164.5 -1,346.9 2.6 15.7 -2.5 -13.9

Source: The speech given by the CBI vice-president at the 26th conference on Monetary and Foreign Exchange Policies, 3/1395* The data on money and quasi-money for the last month of 1394 are estimated

Table 21 - Balance of Deposits and Loans in Banks and Non-bank Financial Institutions

DateDeposits Deposits after deducting

Reserve requirement Loans Reserve requirement ratio

(percent)Amount (IRR trillion)

Percentage change

Amount (IRR trillion)

Percentage change

Amount (IRR trillion)

Percentage change

12/1386 1,741.4 29.9 1,494.7 30.1 1,640.8 36.4 14.212/1387 1,943.3 11.6 1,675.8 12.1 1,852.4 12.9 13.812/1388 2,424.4 24.8 2,131.6 27.2 2,289.6 23.6 12.112/1389 3,187.7 31.5 2,823.2 32.4 3,177.9 38.8 11.412/1390 3,867.0 21.3 3,438.3 21.8 3,803.7 19.7 11.112/1391 4,977.3 28.7 4,403.7 28.1 4,390.6 15.4 11.512/1392 6,844.2 37.5 6,081.1 38.1 5,719.3 30.3 11.112/1393 8,192.8 19.7 7,257.0 19.3 6,739.7 17.8 11.410/1394 9,913.9 21.0 8,898.4 22.6 7,498.0 11.3 10.2

Source: “Selected Economic Indicators”, 1386-94, Central Bank of Iran

Liquidity increase in 1394 came about for reasons other than those in 1393. Positive real interest rates due to the fall in inflation rate increased the attractiveness of bank deposits in comparison to other investment alternatives, leading the share of quasi-money in total liquidity. On the other hand, since a considerable proportion of the extended facilities were rolled

overs, liquidity only increased in bank’s accounting books, indicating low velocity. This created a credit crunch even as liquidity seemed to grow. According to some CBI authorities, 15 percent of the banking system funds were invested in speculative activities in real estate, and given the continuing housing market recession, most banks have incurred losses.

7.1 - Banks’ Performance in 1394

Banks’ Resources and Expenditures

In contrast to 1393 during which the balance of deposits in both IRR and foreign currencies in banks and financial institutions fell, during the first 10 months of 1394 this balance grew by 21.0 percent and reached IRR9,914 trillion. Given that time deposits accounted for 90 percent of the total deposits, this substantial increase in the balance indicates the growing attraction of bank deposits compared to other financial instruments. In 1394 CBI

reduced the reserve requirement ratio by 1.2 percentage point, bringing it to lowest level in the past decade. The reduction in this ratio, ceteris paribus, led to an increase in M2 money multiplier and money creation by the banking system. Table 21 illustrates banks and financial institutions’ balance of deposits and loans in IRR and foreign currencies from 12/1386 to 10/1394.


Table 22 - Assets and Liabilities of Banks and Non-bank Financial Institutions (IRR trillion)

DescriptionBalance

at the end of 11/1394

Banks share (percentage points) Percentage change

Commercial SpecializedPrivate Bank

and Non-bank Financial

Institutions

11/1394 to 11/1393

11/1394 to 12/1393

AssetsForeign Assets 2,128.9 15.4 21.3 63.3 8.5 11.5Notes and coins 104.5 42.6 8.6 48.8 9.2 49.1Deposits with the Central Bank 1,063.3 17.5 7.7 74.8 21.8 19.5Claims on public sector 1,174.3 27.5 32.3 40.2 19.6 12.9Claims on non-public sector 7,133.8 15.6 25.0 59.4 15.4 13.1Others 5,557.1 16.5 8.8 74.7 43.0 44.6LiabilitiesDeposits of non-public sector 9,458.6 17.3 10.3 72.4 29.6 26.6Claims of the Central Bank 853.6 17.7 66.2 16.2 -1.2 -0.5Loans and deposits of public sector 296.2 44.4 43.2 12.4 -22.3 -21.6Capital account 714.6 14.2 18.7 67.2 8.0 3.3Foreign exchange loans and deposits 1,620.5 11.9 19.5 68.6 6.5 10.5Others 4,218.4 16.6 25.5 57.9 29.7 32

Source: “Selected Economic Indicators”, 11/1394, Central Bank of Iran

As shown in Table 21, since 1390 the extended facilities has been growing at lower rates than deposits (after deducting reserves), the loan-to-deposit ratio has been falling continuously. This trend was intensified in 1394 when despite the 22.6 percent growth in deposits, extended facilities grew by only 11.3

percent. Figure 10 illustrates the loan-to-deposit ratio from 1386 to 1394. Its dramatic decline in recent years may be attributed to factors such as banks’ fear of rising non-performing loans (NPLs) and tougher CBI surveillance of lending activities.

Table 22 exhibits assets and liabilities of banks and non-bank financial institutions up to the end of 11/1394. During this period total assets (liabilities) of banks and non-bank financial institutions grew by 22.0 percent and reached IRR17,162 trillion; 42.0 percent of it in claims on non-public sector. During

the same period, banks and non-bank financial institutions’ net claims on public sector grew by 32.5 percent due to the 12.9 percent increase in their claims on public sector and the 21.6 percent reduction in loans and deposits of public sector. Their claims on non-public sector also grew by 13.1 percent.

During the first 11 months of 1394, banks and non-bank financial institutions’ reserve requirement and sight deposits with the CBI grew by 17.1 percent and 72.0 percent, respectively. Given that bank’s reserves with CBI grew at a lower rate than did banking system deposits, the reserve requirement ratio has fallen. As shown in Table 22, CBI claims on banks and non-bank financial institutions were dominated by claims on specialized banks, pointing to discretionary loans to sectors targeted by the previous government. Although CBI claims on commercial and specialized banks increased, CBI claims on non-public banks

and non-bank financial institutions fell slightly as a result of a significant decrease in CBI claims on non-public banks and non-bank credit institutions in the first 11 months of 1394.

Extended Facilities and Non-Performing LoansIn 1394, banks’ extended facilities grow by 22.2 percent to reach IRR4,173.2 trillion. It is worth mentioning that 16.6 percent of these loans were made in the last month of the year. Given the annual inflation rate of 11.9 percent, the real growth rate of extended facilities was 9.2 percent. Table 23 illustrates

Figure 10 - Loans to Deposits Ratio, Reserve Requirements Deducted at Year End (percent)

Source: “Selected Economic Indicators”, 1386-94, Central Bank of Iran


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extended facilities by economic sectors. The agriculture, manufacturing and mining, and services and commerce sectors’ shares of the extended facilities in 1394 were respectively 8.4 percent, 29.2 percent, and 52.0 percent, accounting for

12.8 percent, 28.7 percent, and 57.4 percent of the GDP. The remaining 10.3 percent of the facilities was extended to the housing and construction sector.

In an effort to direct banking system’s resources to short-term facilities, in 1393 CBI prohibited banks from offering time deposits with maturities of over one year. As a result, the share of extended facilities to the manufacturing and mining sector increased from 80.9 percent in 1393 to 82.2 percent in 1394. Banks’ extended facilities in the form of working capital in all economic sectors rose by 27.2 percent to reach IRR2,634.3, equivalent to 63.1 percent of the total. Given the 22.2 percent growth of total facilities in 1394, it illustrates the increasing

share of facilities extended to working capital. Currently 10.1 percent of banks’ resources are allocated to new projects, mostly to services and housing and construction sectors. Nevertheless, facilities such as mortgages are inherently long-term and, given the absence of financial instruments to securitize these loans, such facilities will tie up banking system’s resources. As shown in Figure 11, a significant portion of these facilities in recent years has not been paid back to the banking system, i.e., constituted non-performing loans (NPLs).

In 1394, NPL’s share of total extended facilities reached 12.2 percent, which is alarmingly higher than the norm of 2 to 5 percent. High NPLs are partly due to low GDP growth rates in recent years and high nominal interest rates even while the inflation rate was falling. But structural problems in the money market, banks’ weakness in customers’ credit evaluation, and CBI’s history of bailing out insolvent banks that has almost eliminated the cost of extending risky loans have had their shares.

Interest RatesReal interest rates on bank deposits and facilities, after years of being negative, turned positive in early 1393 and has been

increasing in magnitude since. In 1394 the annual inflation rate decreased to 11.9 percent and, given CBI determined discretionary interest rates of 22.0 percent on one-year deposits, 22 percent on transactional contract facilities and 28 percent on participatory contracts facilities, the real interest rates were positive and increasing. Real financing cost of enterprises also increased along with the increase in real interest rates on deposits. The negative effects of this increase on investment as well as the banks’ vulnerable position prompted CBI to lower its discretionary interest rates. Less than 5 weeks into 1394, interest rates on one-year deposits were reduced to 20.0 percent, on transactional contracts facilities to 21.0 percent and on participatory contracts facilities to 24.0 percent. Towards the

Table 23 - Bank’s Extended Facilities in 1394 by Sector and Purpose (IRR trillion / percent)

Agriculture Manufacturing and Mining

Housing and Construction Trade Services Others All sectors

Amount Share Amount Share Amount Share Amount Share Amount Share Amount Share Amount Share

Creation 63.1 17.9 83.1 6.8 85.4 19.8 22.8 4.0 166.1 10.4 0.1 8.6 420.7 10.1

Working capital 238.9 67.8 1,002.8 82.2 86.5 20.1 402.3 70.5 902.8 56.5 1.0 63.0 2,634.3 63.1

Repair 1.3 0.4 4.2 0.3 46.4 10.8 1.2 0.2 18.0 1.1 0.0 0.2 71.1 1.7

Development 24.0 6.8 75.2 6.2 19.9 4.6 22.1 3.9 89.7 5.6 0.0 0.4 231.0 5.5

Purchase of consumer goods

14.3 4.1 22.4 1.8 16.6 3.8 37.9 6.7 280.9 17.6 0.1 8.7 372.3 8.9

Purchase of house 1.7 0.5 7.9 0.6 160.7 37.3 5.1 0.9 18.0 1.1 0.0 0.2 193.4 4.6

Others 8.8 2.5 23.9 2.0 15.7 3.6 78.9 13.8 122.9 7.7 0.3 18.9 250.5 6.0

Total 352.2 100.0 1,219.5 100.0 431.1 100.0 570.4 100.0 1,598.3 100.0 1.6 100.0 4,173.2 100.0

Source: Extended facilities by sectors and purpose of the receipt in 1394, Central Bank of Iran

Figure 11 - Ratio of Non-performing Loans to Total Loans (percent)

Source: Economic Trends reports, Central Bank of Iran The data for 1394 is for the first 11 months


The 7.2 percent real interest rate on one-year deposits in 1394 was unprecedented and led the CBI to inject cash into the interbank market and reducing legal reserve requirements so as to induce its reduction through market forces. As a result the overnight interbank rate, which had gone up from an average 23.2 percent in 1392 to 27.0 percent in 1393, dropped for a while to 18.0 percent. Although this CBI intervention may be considered a step away from its discretionary interest

rate setting, in the current environment it may also lead to an increase in monetary base and thus in inflation rate. In 1394 interest rate on bank deposits and facilities did not keep up with interbank rates as a result of structural problems in the banking system in which cash strapped banks vie for deposits and use higher rates to entice depositors. However, the interbank rate has not kept pace with the inflation rate and therefore it has been less influential on facilities’ interest rates.

Unauthorized Financial IntermediariesIt is estimated that there are approximately 7,000 financial intermediaries in the country no more than 1,000 of them are licensed by the CBI. The unauthorized financial intermediaries hold approximately 20 percent of total liquidity, and a large proportion of this liquidity is held by fewer than 10 of them. Bringing these institutions under CBI supervision is a top priority. CBI’s policy seems to be that if these institutions take steps to increase transparency and accountability, it may issue them operating licenses. There have been judicial probes

of some of these unlicensed institutions in recent years that in some cases led to the dissolution of a few of them. Unauthorized financial intermediaries have been a strong force in keeping nominal interest rates high. With the pertinent authorities’ determination in bringing these institutions under CBI supervision and as the public becomes more aware of the risks associated with these unauthorized institutions, it seems their influence on the money market has gradually weakened and this trend is expected to continue.

8. PricesThe inflation rate, as measured by changes in the consumer prices index (CPI) in urban areas, continued its downward trend in 1394. By the end of the year the monthly point-to-point CPI inflation rate reached 8.3 percent and the average inflation

rate for the year to 11.9 percent, indicating a 3.7 percentage point drop from the year before. Figure 13 exhibits the trends of monthly and annual CPI inflation rates in 1394.

end of the year, interest rates were again cut to 18.0 percent on one-year deposits, 20 percent on non-participatory contracts facilities, and 22.0 percent on participatory contracts facilities.

Figure 12 exhibits the trends of interest rates on one-year deposits and annual inflation rates from 1383 to 1394.

Figure 12 - Interest Rate on One-year Deposits compared to Inflation Rates (percent)

Figure 13 - Annual and Point-to-point Monthly Inflation Rates, 1394 (percent)

Source: Economic Trends reports, Central Bank of Iran

Source: Consumer Price Index Reports, Central Bank of Iran


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Two important factors contributing to the downward trend included the contraction of the money supply and low international inflation. During the first ten months of 1394, money in circulation decreased by 2.2 percent and notes and

coins with the public decreased by 15.3 percent. Low global inflation rates meant that tradable goods experienced much lower inflation rates than non-tradable goods as exhibited in Figure 14.

“Foods and beverages” that accounts for 27.4 percent of the consumption basket played an important role in the decline of the overall inflation rate as the monthly point-to-point inflation rate in this group gradually declined from over 20 percent in the first months of the year to only 3.5 percent in the last month. The recession in the housing market also contributed to the falling inflation rate. The group of “housing, water, electricity, gas and other fuels” is the largest component of the consumption

basket and accounts for 32.8 percent of the total and the annual inflation rate in this group was 12.3 percent, which is fairly low. On the other hand, the average price paid for health services increased by 24.3 percent, more than any other group, despite the healthcare reform plan that aimed at reducing out-of-pocket expenditures. Table 24 shows the annual and point-to-point monthly inflation rates in the main components of the consumption basket in 1394.

Figure 14 - Inflation Rates for Tradable and Non-tradable Goods (percent)

Source: Consumer Price Index, Tradable and Non-tradable Goods reports, Central Bank of Iran

Table 24 - CPI Inflation Rate in Goods and Services Groups, 1394 (percent)

Group Base Year Weight Point-to-point 12/1394 Annual 1394

General Index 100.0 8.3 11.9Major groups:Food and Beverages 27.4 3.5 10.6Tobacco 0.4 0.9 -2.8Clothing and Footwear 4.9 7.4 10.5Housing, Water, Electricity, Gas and other 32.8 10.7 12.3Furnishings, Household equipment and Routine-House-hold Maintenance 5.1 3.4 5.6

Health 7.0 17.4 24.3Transport 9.9 9.1 11.2Communication 2.4 5.3 3.7Recreation and Culture 2.9 10.0 15.4Education 2.2 21.7 16.2Restaurants and Hotels 1.9 12.0 16.3Miscellaneous Goods and Services 3.2 9.6 11.2Special Groups:Goods 52.7 4.6 9.2Services 47.3 13.6 15.9

Source: Consumer Price Indices Reports, Central Bank of Iran


In 1394, the average price of Iran’s non-oil exports experienced fell by 16.0 percent. Considering IRR depreciation against major other foreign currencies, the 16.0 percent fall in the

export price index implies a significant improvement in the competitiveness of Iran’s exports. Details of the change in export prices are presented in Table 25.

In 1394, the inflation rate in “services” averaged 15.9 percent which was substantially higher than the 9.2 percent inflation rate in the group of “goods”. The gap between the inflation rates of these two groups widened to 9.0 percentage points in the last month of 1394. The decrease in the CPI inflation rate can also be partly attributed to the fall in the producer prices inflation (PPI) that was a result of the low economic growth.

As illustrated in Figure 15, the PPI affects the CPI usually with a 6-month lag. Given that the PPI inflation rate has followed a downward trend in the second half of 1394 and has reached 3.5 percent in the last month of 1394, it is expected that the CPI inflation rate will continue its downward trend at least during the first half of 1395.

Figure 15 - Point-to-point PPI Inflation Rate with a 6-month Lag and Point-to-point CPI Inflation Rate (percent)

Source: Consumer Price Index and Producer Price Index Reports, Central Bank of IranNote: The data on PPI goes back to 6 months before

Table 25 - Growth Rate of Export Price Index, 1394 (percent)

Group 12/1394 (Point-to-point) AnnualGeneral Index -18.1 -16.0

Major GroupsAnimal Products -1.6 0.7Vegetable Products 2.2 6.7Animal or Vegetable Fats and Oils -21.4 3.3Prepared Foodstuffs, Beverages and Tobacco 2.7 2.3Mineral Products -41.4 -35.8Products of the Chemical or Allied Industries -14.7 -15.5Plastics and Articles Thereof, Rubber and Articles Thereof 0.4 -9.0Skins and Leather and Articles Thereof -32.7 -34.4Wood and Articles of Wood -2.9 0.2Textiles and Textile Articles 0.7 11.4Footwear 1.3 3.9Articles of Stone -8.0 -2.2Base Metals and Articles of Base Metal -22.0 -14.1Machinery and Mechanical Appliances, Electrical Equipment -3.8 -1.7Vehicles and Associated Transport Equipment -0.9 9.9

Special Group:Petrochemical products -28.4 -27.1

Source: Export Price Indices Reports, Central Bank of Iran


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9. Capital MarketIn 1394 the overall index of the Tehran Stock Exchange (TSE) went up in 60 percent of its trading days and for the year as a whole registered 28.3 percent increase and its market value rose by 19 percent. The industry index rose by 30.6 percent

and contributed more than financial institutions to the TSE growth; the latter also experienced more variations as measured by standard deviation. Table 26 presents more statistics on the performance of the stock exchange in 1394.

Table 26 - Tehran Stock Exchange Indices

Group Overall Index Price Index

Equally-weighted Overall Index

Equally-weighted

Price Index

Free Float Index

Financial Index

Industry Index

End of 1394 80,219 30,511 13,357 11,202 92,557 158,225 66,994End of 1393 62,532 26,987 9,862 9,036 72,210 135,089 51,296Percentage of Changes 28.3 13.1 35.4 24.0 28.2 17.1 30.6Standard Deviation of Changes 0.737 0.763 0.688 0.695 0.855 1.165 0.718

Source: Report of Market Analysis, 1394Q4, Tehran Stock Exchange

Important developments relating to the TSE in 1394 include the widening of the permissible range of price variation of stocks by 1 percentage point and of preemptive rights by 2 percentage points, exemption of brokerage houses from value-added tax, initiating the offering of Istisna Sukuk, announcement of procedures for the buyback of treasury stocks, and the signing of a memorandum of understanding for collaboration between TSE and the Social Security Organization. The first tranche of Islamic Treasury bills, which had been issued for the first time in 1394, matured and was settled by the government in winter. Market determination of the interest rates on these bills was an

important milestone in the development of the debt market in Iran.In 1394Q3 the stimulus package, along with the lifting of sanctions by the EU, had a small positive effect on the stock market but two months later TSE index began to fall to eventually reach below its level at the beginning of the year. Nevertheless the Implementation Day of the JCPOA and regaining access to SWIFT since 11/1394 reversed that slide and, as shown in Figure 16, rose sharply in the last quarter of the year.

In 1394, institutional investors accounted for approximately 50.5 percent of the buy value and 53.8 percent of the sell value of all orders executed in the stock market. As shown in Table

27, in 1394 TSE’s total transaction volume rose by 37.9 percent and participation bonds experienced substantial growth both in terms of value and volume of transactions.

Figure 16 - TSE’s Overall Index and Total Volume of Traded Shares and Preemptive Rights, 1394

Source: Report of the Performance of Securities Market, Tehran Stock Exchange; Rahavard Novin Software

Table 27 - Total Value and Volume of Transactions in TSE

1393 1394 Changes

Volume Value Volume Value Volume Value(million shares) (IRR billion) (million shares) (IRR billion) (percent) (percent)

Market 165,334 559,422 228,032 561,596 37.9 0.4Equity Market 165,185 542,522 227,798 473,625 37.9 -12.7

Normal Transactions 144,646 377,119 204,287 425,538 41.2 12.8Wholesale Transactions 20,539 165,403 23,511 48,087 14.5 -70.9

Participating Bonds 16 15,767 88 86,626 450.0 449.4Exchange-Traded Funds (ETF) 133 1,133 146 1,345 9.8 18.7



Table 29 - Top Ten Listed Industries in TSE by Market Value 1394

Share of Market Value at the End of

Period

Share of Whole Transactions During

the Period

Effect on Index during the Period

P/E at the end of Period

(percent) (percent) (unit) -Chemical and Petrochemical Products 22.0 9.9 2,995 5.94Banks and Credit institutions 12.1 18.6 1,341 6.04Telecommunication 8.3 1.1 1,991 5.32Basic Metals 7.7 7.9 -3 14.92Industrial Conglomerate Companies 7.1 2.6 1,161 4.95Car and Parts Manufacturing 6.9 19.5 2,991 27.25Petroleum products, coke and nuclear fuel 5.9 8.9 1,293 8.58Mining of metal ores 4.4 1.7 -77 15.76Pharmaceutical material and products 3.7 2.7 1,180 7.33Transport, Storage and Communication 2.9 2.7 990 33.44Other Industries 18.9 24.4 3,825 -

Source: Report of the Stock Exchange Performance, Tehran Stock Exchange; Rahavard Novin Software

In 1394 approximately IRR275.8 trillion was financed through the capital market, 21 percent of it through the debt market – which is a big jump from only 2 percent in the year before. Despite the reduction in capital market financing in 1394, the initial public offerings (IPOs) increased twofold to IRR28.3

trillion. During the same year, volume of capital increase in TSE listed companies dropped to IRR189.0 trillion from IRR213.5 trillion in 1393. Table 28 exhibits statistics on companies’ financing through the capital market in 1393 and 1394.

Ten of the TSE listed industries accounted for 81 percent of the total market value in 1394. Chemical industry had the highest market share of 22.1 percent, followed by banks and financial institutions with a 12.1 percent share. The auto and parts industry with only 6.9 percent of the market value, accounted for 19.5 percent of all trades in the year. Chemicals and auto

industries also had the greatest impact on the overall index, each accounting for about 3,000 points of the overall 18,000 point increase. Of these 10 industries, base metals and mining were the only groups that pulled the index down slightly. Detailed statistics on the 10 top industries are presented in Table 29.

Figure 17 illustrates rates of return in these 10 industries against their risks as measured by standard deviation. It can be seen that the auto and parts industry experienced high returns associated with high volatility and risk. The pharmaceutical group, despite its low performance vis-à-vis auto group, exposed investors

to lower risks. Medical and optical group experienced 774.9 percent but was too volatile. On the other hand, plastic and rubber group experienced a negative growth rate of 21.7 without much volatility.

Table 28 - Financing via Capital Market Instruments in TSE (IRR Trillion)

1393 1394

Value Share of Total Value Share of TotalEquity Financing 225.4 98 217.3 79

Initial Public Offering (IPO) 11.9 5 28.3 10Raise Funding 213.5 93 189.0 69

Receivables and Cash 105.2 46 103.6 38Accumulated profits, Reserves, and Share Premiums 108.2 47 85.3 31

Debt Financing 3.7 2 58.5 21Sum 229.1 100 275.8 100



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Figure 17- Risk and Return of Top 10 Most Important Industries Listed in TSE*

Source: Report of Market Analysis, 1394Q4, Tehran Stock Exchange * The size each diagram represents each industry’s share of market value

10. Business EnvironmentBusiness environment of a country refers to factors in that country that are outside of the control of companies’ managers but influence their operation and productivity. Clearly, government policies strongly affect a country’s business environment. While it is not easy to measure and quantify business environment, various institutions have devised indicators for assessing and measuring it from their own perspectives and with different

methodologies. The most widely referred of such indicators include the Global Competitiveness Index (GCI) of the World Economic Forum, the Doing Business ranking of the World Bank, and the Economic Freedom Index of the Heritage Foundation. Some of these indicators are introduced in the following sections.

10.1 - Ease of Doing BusinessThe World Bank’s annual Doing Business index ranks economies on their ease of doing business. The rankings are determined by sorting the aggregate distance to frontier scores on 10 issues, each consisting of several indicators. The latest report examines data for 189 economies and aggregates information on 10 areas of business regulation affecting small and medium-sized enterprises throughout their life cycle. The 2016 report introduces new measures of regulatory quality dealing with construction permits, getting electricity, registering property and enforcing contracts. It also takes into account a significantly expanded data set for the labor market regulations to cover certain dimensions of job quality. In addition, the methodology

for trading across borders has been revamped to increase their relevance. Table 30 illustrates Iran’s ranking in different areas of business environment in 2015 and 2016 and shows that rank among those 189 countries improved by one place in 2016 to 118th. Iran’s ranking in dealing with construction permits and getting electricity has improved noticeably but deteriorated in areas such as foreign trade. Iran has performed better than other countries in the region in the areas of starting a business, getting credit and enforcing contracts, and has also better than the average for the region in obtaining construction permits, getting electricity and registering property.

Table 30 - Iran’s Ranking in Various Fields of Business Environment (out of 189 countries)

2015 2016 Change

Starting a Business 82 87 -5Dealing with Construction Permits 98 69 +29Getting Electricity 94 88 +6Registering Property 89 91 -2Paying Taxes 122 123 -1Trading Across Borders 166 167 -1Getting Credit 90 97 -7Protecting Minority Investors 149 150 -1Enforcing Contracts 62 62 0Resolving Insolvency 137 140 -3

Source: Doing Business report, 2016, World Bank Group


10.2 - Global CompetitivenessThe Global Competitiveness Report 2015-16 of the World Economic Forum (WEF) examines a wide array of determinants of a country’s productivity at both macro and micro levels and on that basis ranks countries. According to the report, Iran ascended 9 places to rank 74th among 140 countries after two years of decline. Table 31 presents Iran’s rankings in this year’s reports in 12 areas relating to prerequisites, efficiency enhancement, and

innovation and sophistication. Except for the three areas of macroeconomic environment, financial market development and innovation, Iran’s ranking has improved or remained unchanged between 2014-15 and 2015-16. Elements contributing to WEF’s downgrading of Iran in macroeconomic environment included increase in budget deficit to GDP ratio, the reduction in gross national savings to GDP ratio, the increase in the government debt to GDP ratio and the country’s credit rating.

Iran performed better than the average of MENA countries in infrastructure, market size, health and primary education, and higher education and training. At the same time it performed weaker in technological readiness, labor market efficiency, institutions, business sophistication, goods market efficiency, macroeconomic environment and innovation.

The reports identifies the most problematic factors for doing business in Iran as difficulties in finance, policy instability, and government bureaucracy, followed by inflation, inadequate infrastructure, foreign exchange rate management, corruption, and restrictive labor regulations.

10.3 - Economic FreedomThe Economic Freedom Index aims at measuring the degree to which individuals may freely work, produce, consume and invest. Factors considered include rule of law, limited government, regulatory efficiency, and open market. The Economic Freedom of the World (EFW) by Fraser Institution, and Index of Economic Freedom (IEF) by Heritage Foundations are the most important reports that aim to measure economic freedom in various countries. Business freedom, trade freedom, fiscal freedom, government spending, monetary spending, investment freedom, financial freedom, property right, freedom from corruption, and labor freedom constitute the 10 components of the Heritage Foundation’s Index of Economic Freedom. According to its 2016 report, Iran ranked 171 among 178 countries, indicating very little improvement over

its previous year. Furthermore, the country’s least favorable factors are listed as liberal investment and finance policies and property rights and its most favorable factors are named as government spending, financial freedom and business freedom. The latest report by Fraser Institution was published in 2015. It contained the result of economic freedom indices for 157 countries that were surveyed in 2013 and examined impacts of economic freedom on investment, economic growth, income levels and poverty rates. Iran ranked 147 among 157 countries. The EFW index measures the degree of economic freedom in five broad areas of government size, legal structure and property rights, monetary policy stability, international trade, and credit and labor market regulations.

Table 31 - Iran’s Ranking in Competitiveness Index

Component Criterion 2014-15(out of 144 countries)

2015-16(out of 140 countries)

Rank in Global Competitiveness Report 83 74

Basic requirements

Overall rank 71 63Institutions 108 94Infrastructure 69 63Macroeconomic environ-ment 62 66

Health and primary education 52 47

Efficiency enhancers

Overall rank 98 90Higher education and training 78 69

Goods market efficiency 120 109Labor market efficiency 142 138Financial market devel-opment 128 134

Technological readiness 107 99Market Size 21 19

Innovation and sophistication factorsOverall rank 102 102Business sophistication 110 110Innovation 86 90

Source: Global competitiveness report, 2015-16, World Economic Forum

Chapter 4

REPORT OF INDEPENDENT AUDITOR AND FINANCIAL STATEMENTS

REPORT OF INDEPENDENT AUDITOR AND FINANCIAL STATEMENTS 69

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Notes

Restated

19 Mar. 2016 20 Mar. 2015

IRR million IRR million

Assets:Cash 9 1,405,710 1,369,694Due from banks and financial institutions 10 1,096,656 105,380Loans and advances 11 27,996,424 21,422,870Investments 12 3,560,451 1,468,127

Due from subsidiaries and associates 13 183,157 93,167

Other accounts receivable 14 1,061,944 444,240Tangible fixed assets 15 1,994,424 2,142,335Intangible assets 16 858,837 667,414Statutory deposit 17 3,099,233 2,891,444Other assets 18 201,655 120,932Total assets 41,458,491 30,725,603

Liabilities:Due to banks and financial institutions 19 469,037 237,253Customer current deposits 20 5,262,561 2,794,128Dividends payable 21 4,718 3,780

Provision for income tax 22 144,914 122,626

Other liabilities and provisions 23 390,654 113,329Staff termination benefits 24 37,423 19,760Total Liabilities 6,309,307 3,290,876

Interest and benefits of investment deposit holders:Customers investment deposits 25 29,149,769 22,085,618Interest payable 26 150,230 238,170Total interest and benefits of investment deposit holders 29,299,999 22,323,788Total liabilities and interest and benefits of investment deposit holders 35,609,306 25,614,664

Shareholders’ equity:Share capital 27 4,000,000 4,000,000Parent's shares owned by subsidiaries - (456)Legal reserve 28 518,876 313,498Retained earnings 1,297,893 772,098Total equity attributable to equity holders of the Bank 5,816,769 5,085,140Non-controlling interests 32,416 25,799Total equity 5,849,185 5,110,939Total liabilities, interest and benefits of investment deposit holders and share-holders’ equity 41,458,491 30,725,603

Middle East Bank (PJSC)Consolidated balance sheet at 19 Mar. 2016

The accompanying notes are an integral part of these financial statements.


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Notes

Restated

Year ended 19 Mar. 2016 Year ended 20 Mar. 2015


Interest income 29 6,512,203 4,932,743Interest expense 34 (4,902,668) (3,702,679)Net interest income 1,609,535 1,230,064Fee and commission income 35 464,788 288,997Fee and commission expense 36 (10,609) (4,680)Net fee and commission income 454,179 284,317Net income (loss) from investment 30 325,925 (6,059)Net foreign exchange transactions income 37 68,304 60,003Total operating income 2,457,943 1,568,325Other income 38 1,216 2,098Administration and general expenses 39 (598,872) (376,330)Provision for bad and doubtful debts 40 (199,061) (148,028)Finance costs 41 (109) (6,342)Depreciation and amortization 42 (137,087) (49,873)Profit before tax 1,524,030 989,850Income tax expense 22 (145,889) (114,836)Profit 1,378,141 875,014Profit attributable to shareholders of the parent company 1,371,939 872,176Profit attributable to non-controlling interests 6,202 2,838

1,378,141 875,014EPS (Rials) 47 343 218

Middle East Bank (PJSC)Consolidated income statement

For the year ended 19 Mar. 2016

The accompanying notes are an integral part of these financial statements.The statement of comprehensive income is not presented because its elements would only have consisted of net profit and prior year adjustment for the year.


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Operating activities:Cash flows from operating activities 44 883,519 759,126

Investing activities:Purchase of tangible fixed assets (147,425) (438,363)Sale of tangible fixed assets 3,336 9,258 Purchase of intangible assets (45,916) (198,562)Sale of intangible assets 3 - Net cash generated from/(used in) investing activities (190,002) (627,667)

Financing activities:Finance costs (6,392) - Dividends paid (639,062) (606,242)Issue of ordinary share capital - 7,800 Net cash flows (used in) from financing activities (645,454) (598,442)Net increase (decrease) in cash 48,063 (466,983)Effect of exchange rate fluctuations on cash (12,047) (41)Cash at beginning of the year 9 1,369,694 1,836,718 Cash at end of the year 9 1,405,710 1,369,694

Middle East Bank (PJSC)Consolidated statement of cash flows




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Notes

Restated

19 Mar. 2016 20 Mar. 2015


Assets:Cash 9 1,392,916 1,363,141 Due from banks and financial institutions 10 1,096,656 105,380 Loans and advances 11 28,095,515 21,474,088 Investments 12 3,648,680 1,562,813

Due from Subsidiaries and associates 13 276,661 123,009

Other accounts receivable 14 890,127 374,120 Tangible fixed assets 15 1,906,471 2,082,375 Intangible assets 16 857,238 665,391 Statutory deposit 17 3,099,233 2,891,444 Other assets 18 118,221 75,430 Total assets 41,381,718 30,717,191

Liabilities:Due to banks and financial institutions 19 469,037 237,253 Customer current deposits 20 5,322,031 2,811,404 Dividends payable 21 4,718 3,780

Provision for income tax 22 138,743 120,015

Other liabilities and provisions 23 376,006 111,514 Staff termination benefits 24 31,462 17,073 Total liabilities 6,341,997 3,301,039

Interest and benefits of investment deposit holders:Customers investment deposits 25 29,094,132 22,103,050 Interest payable 26 150,601 238,916 Total interest and benefits of investment deposit holders 29,244,733 22,341,966 Total liabilities and interest and benefits of investment deposit holders 35,586,730 25,643,005

Shareholders’ equity:Share capital 27 4,000,000 4,000,000 Legal reserve 28 515,614 311,494 Retained earnings 1,279,374 762,692 Total shareholders’ equity 5,794,988 5,074,186 Total liabilities, interest and benefits of investment deposit holders and share-holders’ equity 41,381,718 30,717,191

Middle East Bank (PJSC)Balance Sheet at 19 Mar. 2016



Notes

Restated



Mutual incomeLoans interest income 29 5,936,230 4,154,639 Deposits interest income 29 467,704 671,407 Net income (loss) from investments 30 336,790 (17,376)Sum of mutual income 6,740,724 4,808,670 Bank's share of mutual income 31 (1,434,297) (938,420)Depositor's share of mutual income before deduction of the bank's charges 5,306,427 3,870,250 The Bank's charges 32 (511,517) (445,940)Depositors' share of mutual income 4,794,910 3,424,310 Income from statutory deposit of investment deposits 31 28,100 22,672 Depositors' interest income 4,823,010 3,446,982 Income paid on account to investment deposits 33 (4,885,992) (3,701,356)Overpaid interest to depositors (62,982) (254,374)

Middle East Bank (PJSC)Statement of Investment Deposits Performance




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Middle East Bank (PJSC)Income statement


Notes

Restated



Interest income 29 6,510,681 4,932,743 Interest expense 34 (4,910,753) (3,706,636)Net interest income 1,599,928 1,226,107 Fee and commission income 35 390,259 243,084 Fee and commission expense 36 (9,872) (4,680)Net fee and commission income 380,387 238,404 Net income (loss) from investment 30 336,790 (17,376)Net foreign exchange transactions income 37 50,355 59,993 Total operating income 2,367,460 1,507,128 Other income 38 6,303 2,098 Administration and general expenses 39 (541,057) (344,132)Provision for bad and doubtful debts 40 (199,361) (148,809)Finance costs 41 (109) (6,342)Depreciation and amortization 42 (132,716) (48,677)Profit before tax 1,500,520 961,266 Income tax expense 22 (139,718) (112,750)Profit 1,360,802 848,516

The accompanying notes are an integral part of these financial statements.The statement of comprehensive income is not presented because its elements would only have consisted of net profit and prior year adjustment for the year.


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Notes

Restated



Operating activities:Cash flows from operating activities 44 845,440 749,577

Investing activities:Purchase of tangible fixed assets (112,222) (365,606)Sale of tangible fixed assets - 9,229 Purchase of intangible assets (45,942) (172,592)Net cash generated from/(used in) investing activities (158,164) (528,969)

Financing activities:Finance costs (6,392) - Dividends paid (639,062) (606,242)Net cash flows (used in) from financing activities (645,454) (606,242)Net increase (decrease) in cash 41,822 (385,634)Effect of exchange rate fluctuations on cash (12,047) (41)Cash at beginning of the year 9 1,363,141 1,748,816 Cash at end of the year 9 1,392,916 1,363,141


Middle East Bank (PJSC) Statement of cash flows



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1- Introduction

1.1- BackgroundMiddle East Bank (Public Joint Stock Company) – (“the Bank”) was approved by the Central Bank of Iran (“CBI”) under approval number 91/184904 in October 2012 and registered with Tehran Registrar of Companies under registration number 430795, in the same month. The Bank also registered with Tehran Stock Exchange in July 2012 and its shares were traded in the secondary market in January 2013. The Bank’s Head Office is located in No2, 5th St, Ahmad Qasir(Bucharest) Ave, Tehran, Iran.

1.2- Scope of the Bank activities According to clause No 2 of the Bank’s articles of association, subject of Bank’s activities are as follows:- Accept all kinds of bank deposits.- Issue bearer or registered certificate of deposits.- Grant credit Loans.- Open letters of credit and engage in all foreign exchange transactions.- Issue, purchase and sell participation bonds for itself or on behalf of others, under CBI’s operative regulations.- Receive credit Loans from real or legal persons in according with the standing regulations.- Issue bank guarantees, endorse, accept and underwrite securities including participation bonds.- Operate self-deposit boxes.- Grant Loans for the export of technical services.- Participate and invest directly or through acquisition of share from stock exchange in manufacturing, commercial or service

sectors, under CBI’s operative regulations and usury-free banking law.And …The object of the Bank is to provide funding resources by accepting deposits, credit and using other financial instruments and applying these funds for granting of credit and investing in various sectors of economy.

1.3- Number of branchesThe number of the Bank’s branches at 19 Mar. 2016 is as follows:

19 Mar. 2016 20 Mar. 2015

Branches-Tehran province 9 8Branches-other provinces 4 3

13 11

1.4- EmployeesThe average number of employees during the year is as follows:

19 Mar. 2016 20 Mar. 2015

Head office 163 140Tehran branches 96 89Other provinces' branches 45 20

304 249

The number of staff employed at 19 Mar. 2016 was 326 person.

2 - The Basis of financial statementsThe parent company (the Bank’s) and the group’s consolidated financial statements are prepared based on the Iranian Accounting Standards and the Central Bank of Iran’s regulations. Details of accounting policies, including changes during the year, are included in notes 5 to 7.

2.1 - Principles of consolidationThe consolidated financial statements incorporate the assets, liabilities and results of the subsidiaries controlled by the Bank. Subsidiaries are fully consolidated from the date on which the control commences and are deconsolidated from the date control ceases. In preparing the consolidated financial statements all intergroup transactions and balances are deleted. The subsidiaries consolidated are “Dadeh Pardazan Simaye Aaftab Co.”,“Middle East Bank Brokerage Co.” and “Middle East Currency Exchange Co.”.The parent’s shares owned by subsidiaries have been taken into account at cost.

Middle East Bank (PJSC)Notes on the financial statementsFor the year ended 19 Mar. 2016


3 - Functional and presentation currencyThese consolidated financial statements are presented in Iranian Rials which is the Bank’s functional currency. All amounts have been rounded to the nearest million, except when otherwise indicated.

4 - Use of judgments and estimatesAs the consolidated financial statements have been prepared based on CBI’s regulation, the management has not made judgments and estimates over these regulations.

5 - MeasurementThese consolidated financial statements are based on historical costs except investment listed shares.

6 - Changes in accounting policiesThe Bank observe all accounting policies, mentioned in note 7,with consistency in all reporting periods in the financial statements.

7 - Accounting policies

7.1 - Investments

Consolidated Parent Measurement:Long term investments:

Investment in subsidiaries Consolidated Cost (less provision made for any perma-nent reduction in their values)

Investment in associates Equity method Cost (less provision made for any perma-nent reduction in their values)

Other long term investments Cost (less provision made for any perma-nent reduction in their values)

Cost (less provision made for any perma-nent reduction in their values)

Short term investments:Investment in listed shares Market value Market valueRevenue recognition:

Investment in subsidiaries Consolidated

At the time in which payments of dividends are approved in their annual general meetings (AGM's).(till the date of financial statements approval)

Investment in associates Equity method

At the time in which payments of dividends are approved in their annual general meetings (AGM's).(till the date of financial statements approval)

Other investments in shares

At the time in which payments of divi-dends are approved in their annual gen-eral meetings (AGM's).(till the Balance sheet date)

At the time in which payments of divi-dends are approved in their annual gen-eral meetings (AGM's).(till the Balance sheet date)

7.2 - Tangible fixed assets7.2.1 - Tangible fixed assets, except land are stated at purchase cost. Major repairs and renovations which extend the useful life of assets are capitalized whereas minor repairs are charged to the profit and loss account as incurred.



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7.2.2 - Depreciation of fixed assets is calculated based on section 151 of Iranian Direct Taxation Act of 1988 as amended (the Tax Act) as follows:

Asset Depreciation Rate Basis

Buildings 7% Reducing balanceInstallations 7% Reducing balanceOffice furniture 10 years Straight lineComputer hardware 3 &10 years Straight lineMotor vehicles 25%& 35% Reducing balance

7.2.3 - Fixed assets acquired during a month and put to use are depreciated starting the first date of following month. Assets not utilized immediately when ready to use, are depreciated at 30% of the above rates for the period they have been idle.

7.3 - Intangible assetsIntangible assets except for goodwill are recorded at cost. No depreciation is provided for goodwill, the impairment test is done at year end if needed. Computer software are depreciated on straight line basis.

7.4 - Loan’s interest, fee and penalty revenue recognitionAccording to CBI’s monetary and banking regulations, recognition of loan’s interest is based on accrual basis. Based on these regulations, interest income for doubtful loans has to be taken into account on cash basis. Accordingly, the bank’s revenue recognition is as follows:

Loan's interest, fee and penalty Revenue recognition

InterestCurrent loans Accrual basisPast due loans Accrual basisOutstanding and Doubtful debt Accrual basis

Penalty(Loan's rate)Current loans Accrual basisPast due loans Accrual basisOutstanding and Doubtful debt Cash basis

Penalty(Over loan's rate) Cash basis

FeeGuarantee issuance At the time of issuing guarantee-Cash basisOther services At the time of performing services-Cash

basis

7.5 - According to Usury-Free Banking Law approved on 30 Aug. 1983 and its instructions and according to CBI regulations, mutual income, usage of mutual sources and depositors’ share of mutual income are calculated and its results are reported in the statement of investment deposits performance.



7.6 - Classification of loansLoans are classified in accordance with the CBI’s regulations and based on time as below, customers’ financial states and their industry and business. The classification of loan portfolio is as follows:

Classification Principal & interest (PI) outstanding in months

Current PI< 2Past due 2<PI<6

Outstanding 6<PI<18Doubtful PI>18

*Management has not applied any judgments over the CBI’s regulations.

7.7 - Provision for bad and doubtful loansProvisions for bad and doubtful debts are provided in accordance with the CBI’s regulations as follows:

1. General provision- amounting to 1.5% of the total loan portfolio.2. Specific provision- depending on the classification of the non-performing loans, the Bank is required to provide specific

provisions, after allowing for the value of collaterals based in below table:

Classification Specific percentage

Past due loans 10%Outstanding 20%

Doubtful debt 50-100%

3. For loans that payment of its principal and interest are deferred more than 5 years, specific provision is taken into account equal to 100% (without allowing for collaterals’ value).

Management has not applied any judgments over the CBI regulations.

7.8 - Termination benefitsStaff termination benefits are provided at the rate of one month salary and other remunerations for each year of service.

7.9 - Defined contribution plans

The employees are covered by social security fund so no defined contribution plans provision has taken in to account.

7.10 - Foreign CurrenciesMonetary assets and liabilities are converted at the official exchange rates, advised by the CBI, on a daily basis and exchange differences, if any, are provided in the accounts. Non-monetary assets and liabilities are recorded at the historical exchange rates prevailing at the time of recording transactions in the accounts.

8 - “Others” in NotesThe “Others” in notes are insignificant and are less than 10% of the relevant Note’s total balance.

9- Cash(IRR million)

NoteConsolidated Parent Co.

19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

Cash in hand-LCY 89,456 68,457 88,090 68,260 Cash in hand- FCY 125,429 53,688 125,429 53,688 Unrestricted balances with CBI 9.3 66,317 97,099 66,317 97,099 Unrestricted balances with other banks 9.4 1,124,508 1,150,450 1,113,080 1,144,094

1,405,710 1,369,694 1,392,916 1,363,141



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9.1 - Cash in hand in the Bank’s branches have been counted at the balance sheet date and the cash is insured against theft and fire.

9.2 - Cash in hand-FCY included $ 2,607.468, € 1,280.196, CNY 1,000, AED 403,155, INR 1,000 and TRY 1,100.

9.3 - Unrestricted balances with CBI(IRR million)

Consolidated Parent Co.

19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

Unrestricted current deposits with CBI-LCY 66,134 21,792 66,134 21,792 Unrestricted current deposits with CBI-FCY 183 75,307 183 75,307

66,317 97,099 66,317 97,099

9.4 - Unrestricted balances with other banks(IRR million)


19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

Unrestricted current deposits with other local banks-LCY 24,924 7,890 904 1,534 Unrestricted current deposits with other local banks-FCY 306,880 251,110 319,472 251,110 Unrestricted term deposits with other local banks-LCY 630,362 162,876 630,362 162,876 Unrestricted term deposits with other local banks-FCY - 55,988 - 55,988 Unrestricted current deposits with foreign banks-FCY 162,342 672,586 162,342 672,586 Unrestricted term deposits with foreign banks-FCY - - - -

1,124,508 1,150,450 1,113,080 1,144,094

9.5 - Restricted balances are classified in due from banks and financial institutions note.

10 - Due from banks and financial institutions(IRR million)

NoteConsolidated and Parent Co.

19 Mar. 2016 20 Mar. 2015

Due from CBI 10.2 1,050,000 - Due from other banks 10.3 46,656 105,380 Total 1,096,656 105,380

10.1 - Unrestricted balances are classified as cash.

10.2 - Due from CBI(IRR million)

Consolidated and Parent Co.

19 Mar. 2016 20 Mar. 2015

Restricted current deposits with CBI-LCY 1,050,000 -

* Above balance is provided for buying foreign currencies for three Letters of credit.


10.3 - Due from banks(IRR million)

NoteConsolidated and Parent Co.

19 Mar. 2016 20 Mar. 2015

Restricted current deposits with foreign banks-FCY 10.2 11,902 2,439 Other banks checks 61 91,716 Due from other banks due to PAYA transactions 10.3 34,693 11,225

46,656 105,380

In 29 June 2015 and 8 July 2015, CBI has credited Middle East Bank account in Muscat Bank amounted to OMR 450 million and OMR 180 million, respectively. This amount has to be used for specified purposes defined by CBI. The balance at balance sheet date is OMR 350 million. As the control of this amount is by CBI the balance has been written off with the account payable to CBI.



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11.1 - Classification of loans according to CBI’s regulations is as below:(IRR million)

Parent Co.19 Mar. 2016

Current loans Past due loans Outstanding loans Doubtful debt Total

Joaleh 1,422 - - - 1,422Mozarebeh 2,447,220 28,356 - - 2,475,576Mosharekat Madani (civil partnership contracts) 24,167,311 1,038,343 37,914 166,397 25,409,965Foreign currency facilities 1,147,698 - - - 1,147,698Debtors for paid guarantees 55,855 - - - 55,855Debtors for paid credit cards 77 - - - 77

27,819,583 1,066,699 37,914 166,397 29,090,593Less

Future interests (3,863) - - - (3,863)

Deferred fee and interest - (60,828) (1,931) (8,763) (71,522)

Mozarebeh received fund (11,244) - - - (11,244)

Mosharekat Madani received fund (361,617) - - - (361,617)

Net loans before provision for bad and doubtful debt 27,442,859 1,005,871 35,983 157,634 28,642,347

General provision for bad and Doubtful debt (419,256) (953) - - (420,209)

Specific provision for bad and Doubtful debt (69,256) (4,035) (53,332) (126,623)

27,023,603 935,662 31,948 104,302 28,095,515

As subsidiaries loan balance is not significant, consolidated note has not presented in this part. The intragroup loans has been presented in note 11.8.

11.2 - Provision for bad and doubtful debts is as below:(IRR million)

Parent Co.

19 Mar. 2016 20 Mar. 2015

General provision

Specific provision Total General

provisionSpecific

provision Total

Opening balance 325,211 22,260 347,471 198,662 - 198,662

Provision during the year 94,998 104,363 199,361 126,549 22,260 148,809

Closing balance 420,209 126,623 546,832 325,211 22,260 347,471


11.3 - Foreign currency facilitiesLoan based on its resources-FCY is as below:

(IRR million)

Consolidated and Parent Co.19 Mar. 2016 20 Mar. 2015

Current loans Past due loans

Outstanding loans Doubtful debt Total Total

Internal resources 731,212 - - - 731,212 -

CBI's resources 395,738 - - - 395,738 -

1,126,950 - - - 1,126,950 -


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11.4 - Classification of loans according to its maturity and interest rate is as below:(IRR million)

Parent Co.19 Mar. 2016 20 Mar. 2015

Over 24% 21-24% 18-21% 15-18% 12-15% 12% and less Total Total

2016 and before 2,501,153 - - - - - 2,501,153 21,473,626

2017 21,358,065 1,847,620 500,513 410,119 - 745,710 24,862,027 -

2018 - 349 - - - - 349 -

2019 - - - - 384 731,212 731,596 -

2020 - 390 - - - - 390 462

23,859,218 1,848,359 500,513 410,119 384 1,476,922 28,095,515 21,474,088

20 Mar. 2015 20,916,576 462 408,403 67,142 - 81,505 21,474,088

As subsidiaries loan balance is not significant, consolidated note has not presented in this part. The intragroup loans has been presented in note 11-8.

11.5 - Classification of loans according to its collaterals is as below:

(IRR million)


19 Mar. 2016 20 Mar. 2015

Deposits 214,525 75,323

Participation bonds and stocks 331,089 293,587

Stand-alone legally binding contract 7,037,916 4,545,278

Land, building and equipment 12,459,631 10,245,640

Checks and promissory notes 8,052,354 6,314,260

28,095,515 21,474,088


11.6

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mov

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(66,

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6 1

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0 M

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462

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not

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-8.


11.7 - Classification of loans according to types of customers(IRR million)

Parent Co.

19 Mar. 2016 20 Mar. 2015

Gross balance Provision for bad and doubtful loans Net balance Gross balance Provision for bad

and doubtful loans Net balance

Natural persons 2,946,517 (57,082) 2,889,435 2,593,505 (41,298) 2,552,207

Corporate customers 25,695,830 (489,750) 25,206,080 19,228,054 (306,173) 18,921,881

28,642,347 (546,832) 28,095,515 21,821,559 (347,471) 21,474,088


11.8 - Loans to subsidiaries(IRR million)

19 Mar. 2016 20 Mar. 2015

Interest rate(%) Current Nonperforming Provision for bad

and doubtful loans Total Total

Consolidated subsidiaries

Middle East Bank Brokerage Co. 24 and 15 100,931 - (1,514) 99,417 51,308

12 - Investments(IRR million)

Consolidated

19 Mar. 2016 20 Mar. 2015

Note Short term Long term Total Short term Long term Total

Investment in listed shares 12.1 511,591 - 511,591 516,798 - 516,798

Investment in unlisted shares 12.2 - 569,007 569,007 - 350,927 350,927

Investment in securities with fixed income 12.3 2,405,195 74,658 2,479,853 2,502 597,900 600,402

2,916,786 643,665 3,560,451 519,300 948,827 1,468,127

(IRR million)

Parent Co.

19 Mar. 2016 20 Mar. 2015

Note Short term Long term Total Short term Long term Total

Investment in listed shares 12.1 511,591 - 511,591 515,311 - 515,311

Investment in unlisted shares 12.2 - 657,236 657,236 - 447,100 447,100

Investment in securities with fixed income 12.3 2,405,195 74,658 2,479,853 2,502 597,900 600,402

2,916,786 731,894 3,648,680 517,813 1,045,000 1,562,813



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12.1-Investment in listed shares(IRR million)

Consolidated

19 Mar. 2016 20 Mar. 2015

No. of shares Percentage of investment Cost Market

value Cost Market value

TSE companies :Jam Petrochemical 8,076,376 0.08 74,276 75,118 74,276 62,818Pension Fund Investment 25,111,920 0.17 65,252 48,240 100,423 60,545Iran Chemical Industries 13,078,944 0.28 61,772 54,644 64,847 44,231Pension Fund stock right 21,972,930 0.15 35,122 20,237 - -

Khark Petrochemical 1,935,239 0.10 34,248 22,687 37,214 34,323Middle East Bank Mutual funds 31,191 - 32,997 37,527 32,997 28,206Mokhaberat Iran 9,406,000 0.02 28,613 27,560 28,613 24,230Persian Gulf Petrochemical Industries 3,794,605 0.01 23,950 21,071 23,950 19,785Mines and Metals Development Investment 6,893,076 0.03 23,217 9,802 23,217 12,090Iran Tractor 6,500,000 0.36 18,816 13,189 21,279 18,162Mazandaran Cement 731,185 0.27 15,238 10,555 15,238 11,918Kardan Equity Fund ETF 1,500,000 - 15,027 17,550 15,027 15,000Bandar Abbas Oil Refining 1,100,000 0.01 14,552 6,038 14,552 5,147Ertebatat Sayar 490,881 0.01 13,291 18,733 13,291 15,140Mobarakeh Steel 5,087,296 0.01 12,850 7,143 15,673 8,880National Development Investment Group 4,612,339 0.03 12,464 11,388 2,977 3,102Esfahan Oil Refining 1,762,286 0.01 11,916 5,586 14,621 3,557Gol Gohar 2,639,399 0.01 11,783 6,335 14,830 9,739Investment Group National Development stock right

6,918,509 0.04 11,777 8,268 - -

Firozeh ETF 1,000,000 - 10,018 11,938 10,018 9,986Iran Khodro Investment Development 1,933,940 0.13 9,721 10,414 17,261 10,116National Iranian Copper Industries 2,550,000 0.01 7,209 4,445 7,209 4,776Fars & Khuzestan Cement 2,000,000 0.04 7,083 3,752 7,083 3,928Oil and gas investment 1,800,000 0.00 6,064 4,210 6,064 3,946Kardan mutual fund 5,000 - 5,000 5,784 5,000 5,000Ghadir Investment 1,312,000 0.00 4,051 3,049 3,764 2,629Kharazmi Investment 3,231,522 0.03 3,900 4,249 3,991 4,207National Development Investment 1,584,536 0.04 3,856 2,294 3,856 2,942Open Oil and Gas Corp 697,476 0.00 3,180 1,731 3,719 1,935Pars Minoo 739,848 0.12 3,012 3,488 23,824 18,260Calcimin 748,611 0.04 3,004 1,510 3,004 2,059Alborz Investment 505,824 0.02 2,189 2,480 2,590 1,916Investment Pharmaceutical Suppliers 322,500 0.01 2,071 2,227 2,071 1,534Shahd 411,947 0.20 1,850 1,596 2,972 1,430Daroupakhsh 277,288 0.06 1,790 2,028 1,790 1,093Orumieh cement 158,000 0.04 1,426 602 1,426 973Cement Hegmatan 200,000 0.04 1,400 489 1,400 824Cement Tehran 300,000 0.02 1,049 685 1,049 786Iran Tire 200,000 0.07 952 751 952 688Oil and gas development stock right 244,117 0.00 783 362 - -Butan 124,358 0.02 499 407 500 384Others - - - 37,093 30,466

597,268 490,162 659,661 486,751OTC companies :Zagros Petrochemical 927,372 0.04 23,032 9,297 23,032 13,553


Continued on next page


Consolidated

19 Mar. 2016 20 Mar. 2015

No. of shares Percentage of investment Cost Market


Khorasan Petrochemical 520,000 0.03 4,610 3,664 4,610 3,729Tehran Oil Refinery 601,158 0.01 4,386 2,860 8,829 3,193Lavan Oil Refining 150,000 0.01 3,250 1,950 3,250 1,209 Middle East Mines and Mining Industries Devel-opment Investment

734,268 0.00 3,098 2,118 3,830 2,909

Alborz Etela Investment 725,000 0.17 1,751 1,214 1,922 1,334Damavand Power Generation 4,000 0.00 297 326 - -Others - - - 4,514 4,120

40,424 21,429 49,987 30,047Total 637,692 511,591 709,648 516,798Less: Accumulated decrease in value (126,101) - (192,850) -

511,591 511,591 516,798 516,798

(IRR million)

ParentCo.

19Mar.2016 20Mar.2015

No. of sharesPercentage of invest-

mentCost Market


TSE companies :Jam Petrochemical 8,076,376 0.08 74,276 75,118 74,276 62,818Pension Fund Investment 25,111,920 0.17 65,252 48,240 100,423 60,545Iran Chemical Industries 13,078,944 0.28 61,772 54,644 64,847 44,231Pension Fund stock right 21,972,930 0.15 35,122 20,237 - -

Khark Petrochemical 1,935,239 0.10 34,248 22,687 37,214 34,323Middle East Bank Mutual funds 31,191 - 32,997 37,527 32,997 28,206Mokhaberat Iran 9,406,000 0.02 28,613 27,560 28,613 24,230Persian Gulf Petrochemical Industries 3,794,605 0.01 23,950 21,071 23,950 19,785Mines and Metals Development Investment 6,893,076 0.03 23,217 9,802 23,217 12,090Iran Tractor 6,500,000 0.36 18,816 13,189 21,279 18,162Mazandaran Cement 731,185 0.27 15,238 10,555 15,238 11,918Kardan Equity Fund ETF 1,500,000 - 15,027 17,550 15,027 15,000Bandar Abbas Oil Refining 1,100,000 0.01 14,552 6,038 14,552 5,147Ertebatat Sayar 490,881 0.01 13,291 18,733 13,291 15,140Mobarakeh Steel 5,087,296 0.01 12,850 7,143 15,673 8,880National Development Investment Group 4,612,339 0.03 12,464 11,388 2,977 3,102Esfahan Oil Refining 1,762,286 0.01 11,916 5,586 14,621 3,557Gol Gohar 2,639,399 0.01 11,783 6,335 14,830 9,739Investment Group National Development stock right 6,918,509 0.04 11,777 8,268 - -Firozeh ETF 1,000,000 - 10,018 11,938 10,018 9,986Iran Khodro Investment Development 1,933,940 0.13 9,721 10,414 17,261 10,116National Iranian Copper Industries 2,550,000 0.01 7,209 4,445 7,209 4,776Fars & Khuzestan Cement 2,000,000 0.04 7,083 3,752 7,083 3,928Oil and gas investment 1,800,000 0.00 6,064 4,210 6,064 3,946Kardan mutual fund 5,000 - 5,000 5,784 5,000 5,000Ghadir Investment 1,312,000 0.00 4,051 3,049 3,764 2,629Kharazmi Investment 3,231,522 0.03 3,900 4,249 3,991 4,207National Development Investment 1,584,536 0.04 3,856 2,294 3,856 2,942Open Oil and Gas Corp 697,476 0.00 3,180 1,731 3,719 1,935


Continued on next page


Man

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of t

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ParentCo.

19Mar.2016 20Mar.2015

No. of sharesPercentage of invest-

mentCost Market


Pars Minoo 739,848 0.12 3,012 3,488 23,824 18,260Calcimin 748,611 0.04 3,004 1,510 3,004 2,059Alborz Investment 505,824 0.02 2,189 2,480 2,590 1,916Investment Pharmaceutical Suppliers 322,500 0.01 2,071 2,227 2,071 1,534Shahd 411,947 0.20 1,850 1,596 2,972 1,430Daroupakhsh 277,288 0.06 1,790 2,028 1,790 1,093Orumieh cement 158,000 0.04 1,426 602 1,426 973Cement Hegmatan 200,000 0.04 1,400 489 1,400 824Cement Tehran 300,000 0.02 1,049 685 1,049 786Iran Tire 200,000 0.07 952 751 952 688Oil and gas development stock right 244,117 0.00 783 362 - -Butan 124,358 0.02 499 407 500 384Others - - - - 35,625 28,979

597,268 490,162 658,193 485,264OTC companies :Zagros Petrochemical 927,372 0.04 23,032 9,297 23,032 13,553Khorasan Petrochemical 520,000 0.03 4,610 3,664 4,610 3,729Tehran Oil Refinery 601,158 0.01 4,386 2,860 8,829 3,193Lavan Oil Refining 150,000 0.01 3,250 1,950 3,250 1,209 Middle East Mines and Mining Industries Develop-ment Investment

734,268 0.00 3,098 2,118 3,830 2,909

Alborz Etela Investment 725,000 0.17 1,751 1,214 1,922 1,334Damavand Power Generation 4,000 0.00 297 326 - -Others - - - - 4,515 4,120

40,424 21,429 49,988 30,047Total 637,692 511,591 708,181 515,311Less: Accumulated decrease in value (126,101) - (192,870) -

511,591 511,591 515,311 515,311

12.2 - Investment in unlisted shares(IRR million)

Consolidated

19 Mar. 2016 20 Mar. 2015

No. of shares Percentage of investments Cost Accumulated

decrease in value Book value Book value

% IRR million IRR million IRR million IRR million

Kardan Investment Bank 658,333,000 32.9 444,577 - 444,577 343,271 Middle East Life Insurance Co. 240,400,000 20 120,200 - 120,200 - Others 4,230 - 4,230 7,656

569,007 - 569,007 350,927


Parent Co.

19 Mar. 2016 20 Mar. 2015

No. of sharesPercentage

of investments

Cost Accumulated

decrease in value

Book value Book value

Note % IRR million IRR million IRR million IRR million

Kardan Investment Bank 12.2.1 658,333,000 32.9 421,332 - 421,332 331,196

Middle East Bank Brokerage Co. 52,499,900 75 67,404 - 67,404 67,404

Dadeh Pardazane Simaye Aftab Co. 12.2.2 30,000,000 100 10,500 - 10,500 10,500

Middle East Bank Currency Exchange Co. 37,999,800 95 38,000 - 38,000 38,000

Middle East Life Insurance Co. 12.2.3 240,000,000 20 120,000 - 120,000 -

657,236 - 657,236 447,100

12.2.1 - At the balance sheet date 64% of investment in Kardan Investment Bank Co. has been paid.12.2.2 - At the balance sheet date 35% of investment in Dadeh Pardazan Simaye Aftab Co. has been paid.12.2.3 - At the balance sheet date 50% of investment in Middle East Life Insurance Co. has been paid.

12.3 - Investment in securities with fixed income is as follows:

Consolidated & Parent Co.

Issuer Note Type Interest income 19 Mar. 2016 20 Mar. 2015

% IRR million IRR million

Governmental

Ministry of Economic Affairs and Finance Participation Bond 20&21 352,038 277,900

Ministry of Roads and City Planning Participation Bond 20 170,000 170,000

Construction & Development of Transportation Infrastructure Participation Bond 20 435,000 150,000

Iran National Oil Company 12.3.1 Participation Bond 21 291,300 -

Ministry of Economic Affairs and Finance 12.3.2 Islamic treasury bonds 1,165,818 -

Other bonds with us (882,380) -

Non-governmental

Mapna Sukuk 20 - 2,502

Middle East Bank Ofogh mutual fund 12.3.3 Investment units 21 57,037 -

Kardan mutual fund 12.3.3 Investment units 22 700,000 -

Yekom Iranian mutual fund 12.3.3 Investment units 22 191,040 -

2,479,853 600,402

12.3.1 - Iran National Oil Company’s participation bonds are issued less than its 300,000 million Rials face value and with maturity date of 16 Mar. 2016. 8,700 million Rials difference between cost and net balance of bond’s face value will be amortized using the effective interest rate method. It is noted that the 10% of the amount of investment in this bonds is paid in cash at the time of purchase and the remained amount have been paid off in 14 May 2016. Accounts payable for the purchase of these bonds is presented in note 23.

12.3.2 - Islamic treasury bonds are zero-coupon bonds published by Ministry of Economic Affairs and Finance on behalf of the government.

12.3.3 - Interest rates in the table above are the rates that have guaranteed by mutual funds.



Man

agem

ent R

epor

tR

evie

w o

f Ris

ks a

nd D

iscl

osur

eR

epor

t of I

ndep

ende

nt A

udito

ran

d Fi

nanc

ial S

tate

men

tsSu

rvey

of t

he Ir

ania

n Ec

onom

y

13 -

Due

from

subs

idia

ries

and

ass

ocia

tes

(IR

R m

illio

n)

Con

solid

ated

Pare

nt C

o.

19 M

ar. 2

016

20 M

ar. 2

015

19 M

ar. 2

016

20 M

ar. 2

015

Subs

idia

ries

- 6

78

93,

504

29,

842

Ass

ocia

tes

183

,157

9

2,48

9 1

83,1

57

93,

167

183

,157

9

3,16

7 2

76,6

61

123

,009

13.1

- D

ue fr

om s

ubsi

diar

ies

and

asso

ciat

es a

ccor

ding

to in

terg

roup

tran

sact

ions

are

as

follo

ws:

(IR

R m

illio

n)

Par

ent C

o.

19 M

ar. 2

016

Nam

e of

com

pany

Sale

s of a

sset

s an

d in

vest

men

ts

Purc

hase

of

asse

ts a

nd

inve

stm

ents

Purc

hase

of

serv

ices

Prep

aym

ents

Div

iden

ds

rece

ivab

le

Div

iden

ds

paya

ble

Oth

erT

otal

Dad

eh P

arda

zan

Sim

aye

Afta

b C

o.

-

- -

60,

429

- -

859

6

1,28

8

Kar

dan

Inve

stm

ent B

ank

- -

- -

167

,875

-

- 1

67,8

75

Mid

dle

East

Ban

k B

roke

rage

Co.

- -

- -

15,

000

- 2

32

15,

232

Mid

dle

East

Life

Insu

ranc

e C

o. -

- -

15,

282

- -

- 1

5,28

2

Mid

dle

East

Ban

k C

urre

ncy

Exch

ange

Co.

- -

- -

16,

625

- 3

59

16,

984

- -

- 7

5,71

1 1

99,5

00

- 1

,450

2

76,6

61

Net

Inco

me

-

(IR

R m

illio

n)

Par

ent C

o.

20 M

ar. 2

015

Nam

e of

com

pany

Sale

s of a

sset

s an

d in

vest

men

ts

Purc

hase

of

asse

ts a

nd

inve

stm

ents

Purc

hase

of

serv

ices

Prep

aym

ents

Div

iden

ds

rece

ivab

le

Div

iden

ds

paya

ble

Oth

erT

otal

Kar

dan

Inve

stm

ent B

ank

- -

- -

92,

167

- -

92,

167

Mid

dle

East

Ban

k B

roke

rage

Co.

- -

- -

675

-

- 6

75

Mid

dle

East

Life

Insu

ranc

e C

o. -

- -

1,0

00

- -

- 1

,000

Dad

eh P

arda

zan

Sim

aye

Afta

b C

o.

-

- -

28,

700

3

- 4

64

29,

167

- -

- 2

9,70

0 9

2,84

5 -

464

1

23,0

09

Net

Inco

me

-

Mid

dle

Eas

t Ban

k (P

JSC

)N

otes

on

the

finan

cial

stat

emen

tsFo

r th

e ye

ar e

nded

19

Mar

. 201

6


14 - Other accounts receivable(IRR million)


Note 19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

Dividends 14.1 45,910 60,110 45,910 60,110

Participation bonds interest 9,738 11,307 9,738 11,307

Staff loan 14.2 249,043 218,391 249,043 218,391

Debtors 14.3 757,253 154,432 585,436 84,312

1,061,944 444,240 890,127 374,120

14.1 - Dividends receivable (except dividends from subsidiaries and associate) are as follows:(IRR million)

Consolidated & Parent Co.

19 Mar. 2016 20 Mar. 2015

TSE and OTC companies

Pension fund 15,695 21,461

Bank Melli Investment 7,518 -

Iran Chemical Industries 6,670 8,925

Investment in mines 3,102 3,010

Middle East fund 2,339 -

Mobarakeh Steel 2,081 -

Mazandaran Cement 1,718 -

Gol Gohar 1,320 -

Persian Gulf Petrochemical 941 3,835

Tamin petrochemical 720 -

Investment in national development 681 1,822

Ghadir Investment 525 513

Fars & Khuzestan Cement 500 640

Shahd 488 174

Parsian Oil and Gas Co. 474 1,046

Tamin Pharmaceutical Investment Company 258 369

National Iranian Copper Industries 204 612

Others 676 17,703

45,910 60,110

14.2 - In order to provide incentive to the top management and staff, some of founders have agreed to allocate 5% of the banks shares amounted to 200,000 IRR million to the top managers and staff in form of loan with the shares as collateral. Of these shares, 120 M ones has been allocated to the founders, 77.5 M to top managers and staff and 2.5 M have not been allocated yet.

Till the balance sheet date,2.5 M shares of founder have been paid back and their loan balance is 142 IRR million.



Man

agem

ent R

epor

tR

evie

w o

f Ris

ks a

nd D

iscl

osur

eR

epor

t of I

ndep

ende

nt A

udito

ran

d Fi

nanc

ial S

tate

men

tsSu

rvey

of t

he Ir

ania

n Ec

onom

y

14.3 - Temporary debtors are as follow:(IRR million)


19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

Related to loans

Loans related costs 506 - 506 -

Not related to loans

Pre-paid for purchasing goods and services 22,138 14,347 22,138 14,347

Liquidity Guarantee fee investment funds 6,477 999 6,477 999

Participation bond's discount fee 4,915 4,500 4,915 4,500

Naft-Kav-Zharf Co. - 16,110 - 16,110

Samand investment 512,950 - 512,950 -

Behdash Chemical 7,086 - 7,086 -

Iraq office 6,192 4,660 6,192 4,660

Bridge and building Rhsa 3,595 73 3,595 73

Tamin Atieh Khavarmianeh Co. 2,413 1,856 2,413 1,856

Nia ventilation 2,163 2,163 2,163 2,163

Shine Technology 2,124 368 2,124 368

Kavoshgaran Etminan 2,054 - 2,054 -

Kahroba Gostar Aria 1,789 207 1,789 207

Atlas Tack 1,098 1,098 1,098 1,098

Pooyan Pardazesh Tehran - 5,440 - 5,440

Client's cash in Middle East Bank Brokerage Co. 164,027 65,540 - -

Other 17,726 37,071 9,936 32,491

757,253 154,432 585,436 84,312



15 -

Tang

ible

fixe

d as

sets

(IR

R m

illio

n)

Con

solid

ated

Lan

d B

uild

ings

Inst

alla

tions

Equ

ipm

ents

Mot

or

vehi

cles

Offi

ce

furn

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Im

prov

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ts o

f le

ase

prop

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Proj

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n pr

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ssC

apex

pr

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men

tsT

otal

Cos

t

Bal

ance

at 2

1 M

ar. 2

014

523,

434

239,

743

6,64

139

,018

14,4

4141

,317

14,7

6180

2,77

012

5,21

31,

807,

338

Add

ition

s-

89,2

502,

302

29,0

884,

522

24,7

915,

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329,

594

692,

743

1,17

7,36

2In

crea

se (d

ecre

ase)

from

reva

luat

ion

--

--

--

--

--

Dis

posa

ls-

--

-(1

0,62

3)(2

3)-

--

(10,

646)

Adj

ustm

ents

--

--

--

-(7

19,9

55)

(44,

413)

(764

,368

)B

alan

ce a

t 20

Mar

. 201

552

3,43

432

8,99

38,

943

68,1

068,

340

66,0

8519

,833

412,

409

773,

543

2,20

9,68

6A

dditi

ons

-25

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-34

,444

2,28

327

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28,9

8229

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134

147,

938

Incr

ease

(dec

reas

e) fr

om re

valu

atio

n-

--

--

--

--

-D

ispo

sals

--

-(5

60)

-(3

,076

)-

--

(3,6

36)

Adj

ustm

ents

200,

000

526,

926

37,4

33-

--

-(2

11,8

33)

(743

,728

)(1

91,2

02)

Bal

ance

at 1

9 M

ar. 2

016

723,

434

881,

519

46,3

7610

1,99

010

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90,4

2648

,815

229,

654

29,9

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162,

786

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umul

ated

dep

reci

atio

n a

nd a

ccum

ulat

ed

decr

ease

in v

alue

Bal

ance

at 2

1 M

ar. 2

014

7,31

761

6,89

22,

927

1,98

82,

921

22,1

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epre

ciat

ion

and

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in v

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for t

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19,4

6955

714

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2,38

55,

608

6,90

148

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Dis

posa

ls-

--

(3,6

73)

(6)

-(3

,679

)A

djus

tmen

ts-

--

--

--

Bal

ance

at 2

0 M

ar. 2

015

26,7

8661

820

,896

1,63

97,

590

9,82

267

,351

Add

ition

s52

,333

4,05

520

,928

2,08

47,

494

14,4

1710

1,31

1D

ispo

sals

--

(52)

-(2

48)

-(3

00)

Adj

ustm

ents

--

--

--

-B

alan

ce a

t 19

Mar

. 201

679

,119

4,67

341

,772

3,72

314

,836

24,2

3916

8,36

2

Boo

k va

lue

Bal

ance

at 2

1 M

ar. 2

014

523,

434

232,

426

6,58

032

,126

11,5

1439

,329

11,8

4080

2,77

012

5,21

31,

785,

232

Bal

ance

at 2

0 M

ar. 2

015

523,

434

302,

207

8,32

547

,210

6,70

158

,495

10,0

1141

2,40

977

3,54

32,

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335

Bal

ance

at 1

9 M

ar. 2

016

723,

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802,

400

41,7

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6,90

075

,590

24,5

7622

9,65

429

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1,99

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4

Mid

dle

Eas

t Ban

k (P

JSC

)N

otes

on

the

finan

cial

stat

emen

tsFo

r th

e ye

ar e

nded

19

Mar

. 201

6


Man

agem

ent R

epor

tR

evie

w o

f Ris

ks a

nd D

iscl

osur

eR

epor

t of I

ndep

ende

nt A

udito

ran

d Fi

nanc

ial S

tate

men

tsSu

rvey

of t

he Ir

ania

n Ec

onom

y

(IR

R m

illio

n)

Pare

nt C

o.

Lan

d B

uild

ings

Inst

alla

tions

Equ

ipm

ents

Mot

or

vehi

cles

Offi

ce

furn

iture

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prov

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ts o

f le

ase

prop

erty

Proj

ect i

n pr

ogre

ssC

apex

pr

epay

men

tsT

otal

Cos

t

Bal

ance

at 2

1 M

ar. 2

014

523,

431

238,

803

6,64

134

,792

13,5

4638

,973

14,7

6180

2,77

012

5,21

31,

798,

930

Add

ition

s-

89,2

502,

302

28,0

213,

444

22,9

785,

072

329,

594

642,

743

1,12

3,40

4In

crea

se (d

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ase)

from

reva

luat

ion

--

--

--

--

--

Dis

posa

ls-

--

-(1

0,62

3)-

--

-(1

0,62

3)A

djus

tmen

ts-

--

--

--

(719

,955

)(4

4,41

3)(7

64,3

68)

Bal

ance

at 2

0 M

ar. 2

015

523,

431

328,

053

8,94

362

,813

6,36

761

,951

19,8

3341

2,40

972

3,54

32,

147,

343

Add

ition

s-

--

33,0

411,

479

19,5

0928

,982

29,0

7813

411

2,22

3In

crea

se (d

ecre

ase)

from

reva

luat

ion

--

--

--

--

--

Dis

posa

ls-

--

--

--

--

-A

djus

tmen

ts20

0,00

047

6,92

637

,433

--

--

(211

,834

)(6

93,7

27)

(191

,202

)B

alan

ce a

t 19

Mar

. 201

672

3,43

180

4,97

946

,376

95,8

547,

846

81,4

6048

,815

229,

653

29,9

502,

068,

364

Acc

umul

ated

dep

reci

atio

n a

nd a

ccum

ulat

ed

decr

ease

in v

alue

Bal

ance

at 2

1 M

ar. 2

014

7,1

81

61

6,3

53

2,7

64

1,8

58

2,9

21

21,

138

Dep

reci

atio

n an

d de

crea

se in

val

ue fo

r the

yea

r 1

9,40

8 5

57

13,

099

2,2

05

5,3

33

6,9

01

47,

503

Dis

posa

ls -

- -

(3,6

73)

- -

(3,6

73)

Adj

ustm

ents

- -

- -

- -

- B

alan

ce a

t 20

Mar

. 201

5 2

6,58

9 6

18

19,

452

1,2

96

7,1

91

9,8

22

64,

968

Add

ition

s 5

0,07

6 4

,055

1

9,86

2 1

,519

6

,996

1

4,41

7 9

6,92

5 D

ispo

sals

- -

- -

- -

- A

djus

tmen

ts -

- -

- -

- -

Bal

ance

at 1

9 M

ar. 2

016

76,

665

4,6

73

39,

314

2,8

15

14,

187

24,

239

161

,893

Boo

k va

lue

Bal

ance

at 2

1 M

ar. 2

014

523,

431

231,

622

6,58

028

,439

10,7

8237

,115

11,8

4080

2,77

012

5,21

31,

777,

792

Bal

ance

at 2

0 M

ar. 2

015

523,

431

301,

464

8,32

543

,361

5,07

154

,760

10,0

1141

2,40

972

3,54

32,

082,

375

Bal

ance

at 1

9 M

ar. 2

016

723,

431

728,

314

41,7

0356

,540

5,03

167

,273

24,5

7622

9,65

329

,950

1,90

6,47

1

15.1

- B

ank’

s ta

ngib

le fi

xed

asse

ts a

mou

nted

to 6

73,6

44 IR

R m

illio

n ar

e fu

lly in

sure

d ag

ains

t fire

, ear

thqu

ake,

etc

.

Mid

dle

Eas

t Ban

k (P

JSC

)N

otes

on

the

finan

cial

stat

emen

tsFo

r th

e ye

ar e

nded

19

Mar

. 201

6


16 - Intangible assets(IRR million)

Consolidated

Good will Software Software development

Right to use public services Total

Cost

Balance at 21 Mar. 2014 493,485 2,137 - 1,749 497,371Additions - 5,875 - 942 6,817Internal development - - 166,061 - 166,061Increase (decrease) from revaluation - - - - -Disposals - - - - -Adjustments - - - - -Balance at 20 Mar. 2015 493,485 8,012 166,061 2,691 670,249Additions - 3,367 - 4,287 7,654Internal development - - 38,553 - 38,553Increase (decrease) from revaluation - - - - -Disposals - - - (2) (2)

Adjustments 180,000 199,862 (199,862) - 180,000Balance at 19 Mar. 2016 673,485 211,241 4,752 6,976 896,454

Accumulated amortization and accumulated decrease in valueBalance at 21 Mar. 2014 - 1,344 - - 1,344Amortization for the year - 1,491 - - 1,491Value decrease loss - - - - -Disposals - - - - -Adjustments - - - - -Balance at 20 Mar. 2015 - 2,835 - - 2,835Additions - 34,782 - - 34,782Value decrease loss - - - - -Disposals - - - - -Adjustments - - - - -Balance at 19 Mar. 2016 - 37,617 - - 37,617

Book valueBalance at 21 Mar. 2014 493,485 793 - 1,749 496,027Balance at 20 Mar. 2015 493,485 5,177 166,061 2,691 667,414Balance at 19 Mar. 2016 673,485 173,624 4,752 6,976 858,837



Man

agem

ent R

epor

tR

evie

w o

f Ris

ks a

nd D

iscl

osur

eR

epor

t of I

ndep

ende

nt A

udito

ran

d Fi

nanc

ial S

tate

men

tsSu

rvey

of t

he Ir

ania

n Ec

onom

y

(IRR million)

Parent Co.

Good will Software Software development

Right to use public services Total

Cost

Balance at 21 Mar. 2014 493,485 1,827 - 1,731 497,043Additions - 3,870 - 932 4,802Internal development - - 166,061 - 166,061Increase (decrease) from revaluation - - - - -Disposals - - - - -Adjustments - - - - -Balance at 20 Mar. 2015 493,485 5,697 166,061 2,663 667,906Additions - 3,124 - 4,265 7,389Internal development - - 38,554 - 38,554Increase (decrease) from revaluation - - - - -Disposals - - - - -

Adjustments 180,000 199,862 (199,862) - 180,000Balance at 19 Mar. 2016 673,485 208,683 4,753 6,928 893,849

Accumulated amortization and accumulated decrease in valueBalance at 21 Mar. 2014 - 1,342 - - 1,342Amortization for the year - 1,173 - - 1,173Value decrease loss - - - - -Disposals - - - - -Adjustments - - - - -Balance at 20 Mar. 2015 - 2,515 - - 2,515Additions - 34,096 - - 34,096Value decrease loss - - - - -Disposals - - - - -Adjustments - - - - -Balance at 19 Mar. 2016 - 36,611 - - 36,611

Book valueBalance at 21 Mar. 2014 493,485 485 - 1,731 495,701Balance at 20 Mar. 2015 493,485 3,182 166,061 2,663 665,391Balance at 19 Mar. 2016 673,485 172,072 4,753 6,928 857,238



17 - Statutory deposit(IRR million)


19 Mar. 2016 20 Mar. 2015

Statutory deposit 3,099,233 2,891,444

17.1 - Statutory deposit has been deposited with CBI in accordance with paragraph 3 of Article 14 of banking and monetary law.

18 - Other assets(IRR million)



Term letters of credit debtors 2,837 13,159 2,837 13,159 Non-operational lands and estates 18.1 9,506 - 9,506 - Rental deposits 100,000 57,450 99,000 57,450 Consumables 1,601 3,156 1,601 3,156 Tax stamps 470 301 470 301 Project in progress 74,161 38,709 - - Acquisition Goodwill(Net) 6,165 6,528 - - Others(4 items) 6,915 1,629 4,807 1,364

201,655 120,932 118,221 75,430

18.1- Non-operational lands and real estates(IRR million)

19 Mar. 2016

Balance at 21 Mar. 2015 - Additions 11,202 Disposals -

11,202 Accumulated decrease in value - Accumulated depreciation (1,696)Balance at 19 Mar. 2016 9,506

18.1.1 - Real estates not related to Bank’s activities in accordance with the articles of association are not classified in tangible fixed assets’ note and are presented in this section. This assets are calculated in Bank’s fixed assets limit.

18.1.2 - Rent income of these assets amounted to 5,200 IRR million has been presented in note 38.



Man

agem

ent R

epor

tR

evie

w o

f Ris

ks a

nd D

iscl

osur

eR

epor

t of I

ndep

ende

nt A

udito

ran

d Fi

nanc

ial S

tate

men

tsSu

rvey

of t

he Ir

ania

n Ec

onom

y

19 - Due to banks and financial institutions(IRR million)



Due to the Central bank of IranTerm deposit-FCY 400,526 213,958 Due for purchasing foreign currency 1,693 - Due for overdraft penalty 59 6,342

402,278 220,300 Due to other banksCurrent deposits-FCY 17,712 907 Others 49,047 16,046

66,759 16,953 469,037 237,253

*Other banks investment deposits (IRR and other currencies) are classified in Interest and benefits of investment deposit holders based on their maturities as well as other investment deposits.

20 - Customer current deposits(IRR million)


Note Year ended 19 Mar. 2016 Year ended 20 Mar. 2015 Year ended 19 Mar. 2016 Year ended 20 Mar. 2015

Natural personsCurrent deposits 20.1 363,724 181,706 363,724 181,706 Saving deposits 20.2 4,441 4,626 4,441 4,626 Others 20.3 173,076 2,399 173,076 2,399

541,241 188,731 541,241 188,731 Corporate customersCurrent deposits 20.1 3,070,663 1,346,996 3,103,271 1,363,919 Saving deposits 20.2 22,346 26,167 48,907 26,167 Others 20.3 1,628,311 1,232,234 1,628,612 1,232,587

4,721,320 2,605,397 4,780,790 2,622,673 5,262,561 2,794,128 5,322,031 2,811,404

20.1 - Current deposits(IRR million)


Year ended 19 Mar. 2016 Year ended 20 Mar. 2015 Year ended 19 Mar. 2016 Year ended 20 Mar. 2015

Current deposits-LCY 3,200,100 878,971 3,232,708 895,893 Bank cheques 108,272 113,888 108,272 113,888 Remittance-FCY 118,169 531,811 118,169 531,811 Others-LCY 7,846 4,032 7,846 4,033

3,434,387 1,528,702 3,466,995 1,545,625



20.2 - Saving deposits(IRR million)



Saving deposits-FCY 26,787 30,793 53,348 30,793

20.3 - Other deposits(IRR million)



Guarantee issuing deposits -LCY 1,330,814 840,390 1,331,115 840,743

Guarantee issuing deposits -FCY 14,137 4,843 14,137 4,843

Prepayments for LCs-LCY 179,039 165,079 179,039 165,079

Prepayments for LCs-FCY 277,397 224,321 277,397 224,321

Total 1,801,387 1,234,633 1,801,688 1,234,986

21 - Dividends payableConsolidated and Parent Co.

Dividend per share Dividend Balance at 20. Mar 2015 Paid dividend during the period Balance at 19 Mar. 2016

IRR IRR million IRR million IRR million IRR million

Year ended March 20, 2013 85 340,000 774 (287) 487 Year ended March 20, 2014 150 600,000 3,006 (1,537) 1,469

Year ended March 20, 2015 160 640,000 - (637,238) 2,762

Total 3,780 (639,062) 4,718

22 - Provision for income tax(IRR million)



Opening balance 114,836 67,125 112,750 60,714 Provision for the period 145,889 114,836 139,718 112,750 Prior years tax adjustments 7,790 62,965 7,265 62,440 Paid during the period (122,626) (122,300) (120,015) (115,889)

145,889 122,626 139,718 120,015 Prepayments (975) - (975) - Closing balance 144,914 122,626 138,743 120,015

Tax rate for the year ended 19 Mar 2016 is 15 % according to Direct Tax Law approved on 22 Jul. 2015.



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23 - Other liabilities and provisions(IRR million)


Year ended 19 Mar. 2016




Debts for LCs-LCY 4,365 18,798 4,365 18,798 Debts for LCs-FCY - 3,371 - 3,371 Payable fees and interests 708 - 708 - Social security 24,883 30,017 24,113 29,484 Tax 1,610 1,369 872 1,192 Provision for staff leave 8,511 5,410 8,434 5,410 Provision for accrued expenses 10,505 407 6,837 - National Iranian Oil Company-Bonds on credit 262,170 - 262,170 - Contractors performance deposit 5,789 8,613 5,789 8,613 Customers' prepayments for discount fee on bonds 48,894 28,781 48,894 28,781 Others 23,219 16,563 13,824 15,865

390,654 113,329 376,006 111,514

24 - Staff termination benefits(IRR million)



Opening balance 19,760 7,693 17,073 6,023 Paid during the year (1,277) (336) (1,126) (132)Provision for the year 18,940 12,403 15,515 11,182 Closing balance 37,423 19,760 31,462 17,073

25 - Customers investment deposits(IRR million)


Note Year ended 19 Mar. 2016




Long-term investment deposits 25.1 13,400,359 12,799,115 13,400,359 12,799,714 Short-term investment deposits 25.1 12,236,763 8,984,839 12,264,926 7,548,483 Short-term special investment deposits 25.1 1,178,847 214,853 1,178,847 214,853 Interbank deposits 25.1 2,333,800 86,811 2,250,000 1,540,000

29,149,769 22,085,618 29,094,132 22,103,050



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25.1 - Term inventment deposits based on curreny units are as follows:(IRR million)

Consolidated


IRR FCY Total IRR FCY Total

Short-term investment deposits 14,569,936 627 14,570,563 9,066,321 5,329 9,071,650Short-term special investment deposits

-

Three-month deposit 1,120 7,616 8,736 207,846 3,945 211,791Six-month deposit 1,164,555 5,556 1,170,111 - 3,062 3,062Long-term investment deposits -Certificate of deposit - - - 42,840 - 42,840One-year deposit 9,226,013 822,283 10,048,296 8,531,944 70,750 8,602,694Two-year deposit 200 - 200 63,481 - 63,481Five-year deposit 3,351,863 - 3,351,863 4,090,100 - 4,090,100

28,313,687 836,082 29,149,769 22,002,532 83,086 22,085,618

(IRR million)

Parent Co.


IRR FCY Total IRR FCY Total

Short-term investment deposits 14,514,299 627 14,514,926 9,083,154 5,329 9,088,483Short-term special investment depositsThree-month deposit 1,120 7,616 8,736 207,846 3,945 211,791Six-month deposit 1,164,555 5,556 1,170,111 - 3,062 3,062Long-term investment depositsCertificate of deposit - - - 43,440 - 43,440One-year deposit 9,226,013 822,283 10,048,296 8,531,943 70,750 8,602,693Two-year deposit 200 - 200 63,481 - 63,481Five-year deposit 3,351,863 - 3,351,863 4,090,100 - 4,090,100

28,258,050 836,082 29,094,132 22,019,964 83,086 22,103,050

25.2 - Term investment deposits according to maturity and interest rate(IRR million)

Consolidated


More than 22% 19%-22% 16%-19% 13%-16% 10%-13% Less than 10% Total Total

Matured - 2,063,622 8,461,178 318,890 - 1,399,547 12,243,237 7,498,7222015-16 - 100 391,146 - - - 391,246 10,495,9962016-17 13,600 11,909,710 238,153 40,125 - 834,634 13,036,222 8002017-18 3,700 103,000 125,752 - - 1,449 233,901 106,7002018-19 791,965 1,806,556 - - - - 2,598,521 2,920,9172020-21 515,927 130,715 - - - - 646,642 1,062,483

1,325,192 16,013,703 9,216,229 359,015 - 2,235,630 29,149,769 22,085,61820 Mar.2015 3,341,354 15,918,286 134,766 38,873 - 2,652,339 22,085,618



(IRR million)

Parent Co.


More than 22% 19%-22% 16%-19% 13%-16% 10%-13% Less than 10% Total Total

Matured - 2,090,545 8,461,178 318,890 - 1,400,787 12,271,400 7,543,1542015-16 - 100 391,146 - - - 391,246 10,468,9962016-17 - 11,909,710 207,953 125 - 834,634 12,952,422 8002017-18 3,700 103,000 125,752 - - 1,449 233,901 106,7002019-20 791,965 1,806,556 - - - - 2,598,521 2,920,9172020-21 515,927 130,715 - - - - 646,642 1,062,483

1,311,592 16,040,626 9,186,029 319,015 - 2,236,870 29,094,132 22,103,05020 Mar.2015 3,332,354 15,961,720 116,766 38,873 - 2,653,337 22,103,050

25.3 - Movements of IRR investments deposits(IRR million)


Balance at 20 Mar.

2015

Received Deposits

Principal repayment

Balance at 19 Mar.

2016

Balance at 20 Mar.

2015New Deposits Principal

repayment

Balance at 19 Mar.

2016Long-term depositsCertificate of deposit 42,840 42,840 85,680 - 43,440 42,840 86,280 -One-year deposits 8,531,944 15,022,666 14,328,597 9,226,013 8,531,943 15,022,666 14,328,596 9,226,013Two-year deposits 63,481 - 63,281 200 63,481 - 63,281 200Five-year deposits 4,090,100 - 738,237 3,351,863 4,090,100 - 738,237 3,351,863Short-term deposits 9,066,321 298,528,467 293,024,852 14,569,936 9,083,154 298,072,010 292,640,865 14,514,299Special short-term deposits

207,846 1,286,798 328,969 1,165,675 207,846 1,286,798 328,969 1,165,675

22,002,532 314,880,771 308,569,616 28,313,687 22,019,964 314,424,314 308,186,228 28,258,050

26 - Interest payable(IRR million)

ConsolidatedBalance at 20

Mar.2015Prepaid advance

interestThe difference between final inter-est and prepaid advance interest

Interest paid during the period

Balane at 19 Mar .2016

Short-term deposits 58,044 1,851,601 - (1,856,618) 53,027Special short-term deposits 1,712 50,357 - (43,636) 8,433One-year deposits 96,432 1,945,571 - (2,008,470) 33,533Two-year deposits 782 5,255 - (6,035) 2Five-year deposits 51,794 859,594 - (869,388) 42,000Certificate of deposit 26 2,873 - (2,899) -Interbank deposits 28,767 162,657 - (185,732) 5,692Foreign currency deposits 613 24,760 - (17,830) 7,543

238,170 4,902,668 - (4,990,608) 150,230



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(IRR million)

Parent Co.Balance at 20

Mar.2015Prepaid advance

interestThe difference between final inter-est and prepaid advance interest

Interest paid during the period

Balane at 19 Mar .2016

Short-term deposits 58,790 1,859,685 - (1,865,077) 53,398

Special short-term deposits 1,712 50,357 - (43,636) 8,433

One-year deposits 96,432 1,945,571 - (2,008,470) 33,533

Two-year deposits 782 5,255 - (6,035) 2

Five-year deposits 51,794 859,594 - (869,388) 42,000

Certificate of deposit 26 2,873 - (2,899) - Interbank deposits 28,767 162,657 - (185,732) 5,692

Foreign currency deposits 613 24,761 (17,831) 7,543

238,916 4,910,753 - (4,999,068) 150,601

27 - Share capitalThe bank’s capital is IRR 4,000,000 million comprising 4,000 million shares with a face value of IRR 1,000 per share.

27-1 - Composition of shareholders at the date of balance sheet is as follows:


No. of shares Percentage of shares

More than 1%System Keifiat Fonoun Co. (Private Joint Stock) 200,000,000 5.0%Natural person 163,660,000 4.1%Tosee Sanati Investment Co. (Public Joint Stock) 160,000,000 4.0%Natural person 128,780,000 3.2%Natural person 80,400,000 2.0%Atieh Khahan Investment Co. (Private Joint Stock) 80,145,155 2.0%Natural person 70,000,000 1.8%Natural person 63,048,000 1.6%Pars Tousheh Investment Co.(Public Joint Stock) 59,267,458 1.5%Natural person 55,000,000 1.4%Natural person 55,000,000 1.4%Natural person 53,990,000 1.3%Tosee Noor e Dena Investment Co.(Private Joint Stock) 50,767,511 1.3%Natural person 46,555,410 1.2%Sam Group Co. (Private Joint Stock) 43,000,000 1.1%Natural person 41,205,000 1.0%Natural person 41,182,256 1.0%Shahrak Sanaye Daryayi Sahel Arvand (Private Joint Stock) 40,000,000 1.0%Sepahan Industry Group (Public Joint Stock) 40,000,000 1.0%Jahan Pars Engineering and Construction Co. 40,000,000 1.0%Others (less than 1%)Corporate Investors ( 206 shareholders) 407,674,527 10.2%Natural persons (2494 shareholders) 2,080,324,683 52.0%

4,000,000,000 100%




No. of shares Percentage of shares

More than 1%System Keifiat Fonoun Co. (Private Joint Stock) 200,000,000 5.0%Tosee Sanati Investment Co. (Public Joint Stock) 200,000,000 5.0%Tamin Atieh Khvarmianeh(Private Joint Stock) 155,504,664 3.9%Natural person 130,100,000 3.3%Natural person 128,780,000 3.2%Atieh Khahan Investment Co. (Private Joint Stock) 83,347,919 2.1%Natural person 80,400,000 2.0%Natural person 70,000,000 1.8%Natural person 63,048,000 1.6%Pars Tousheh Investment Co.(Public Joint Stock) 58,669,057 1.5%Natural person 55,000,000 1.4%Natural person 55,000,000 1.4%Natural person 53,990,000 1.3%Sam Group Co. (Private Joint Stock) 43,000,000 1.1%Natural person 42,205,000 1.1%Natural person 41,182,256 1.0%Jahan Pars Engineering and Construction Co. 40,000,000 1.0%Sepahan Industry Group (Public Joint Stock) 40,000,000 1.0%Shahrak Sanaye Daryayi Sahel Arvand (Private Joint Stock) 40,000,000 1.0%

Others (less than 1%)Corporate Investors ( 193 shareholders) 442,330,342 11.1%Natural persons (1768 shareholders) 1,977,442,762 49.4%

4,000,000,000 100%

28 - Legal reserve(IRR million)






Opening balance 313,498 184,757 311,494 184,216 Transferred from net profit 205,378 128,741 204,120 127,278 Closing balance 518,876 313,498 515,614 311,494

28.1 - According to Article 33 of the Money and Banking Regulation and Article 108 of the Bank’s articles of association, 15 per-cent of net profit is allocated to legal reserve annually. Annual allocation is compulsory till it equals the Bank’s capital.



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29 - Interest income(IRR million)

Consolidated

19 Mar. 2016 20 Mar. 2015

Note Mutual Non-mutual Total Mutual Non-mutual Total

Loans income 29.1 5,936,230 74,373 6,010,603 4,154,639 81,944 4,236,583 Deposits income 29.2 469,226 32,374 501,600 671,407 24,753 696,160 Total 6,405,456 106,747 6,512,203 4,826,046 106,697 4,932,743

(IRR million)

Parent Co.

19 Mar. 2016 20 Mar. 2015

Note Mutual Non-mutual Total Mutual Non-mutual Total

Loans income 29.1 5,936,230 74,373 6,010,603 4,154,639 81,944 4,236,583 Deposits income 29.2 467,704 32,374 500,078 671,407 24,753 696,160 Total 6,403,934 106,747 6,510,681 4,826,046 106,697 4,932,743

29.1 - Loans income(IRR million)

Consolidated and Parent Co.19 Mar. 2016 20 Mar. 2015

Rials FCY (Non-mutual) Total

Rials FCY(Non-mutual) Total

Mutual Non-mutual Total Total Non-mutual Total

Joaleh 146 - 146 - 146 65 - 65 1,483 1,548

Mozarebeh 623,833 - 623,833 - 623,833 252,867 - 252,867 - 252,867Mosharekat Madani (civil partnership contracts) 4,157,615 - 4,157,615 11,260 4,168,875 3,641,372 - 3,641,372 - 3,641,372

Penalty 1,154,636 - 1,154,636 - 1,154,636 260,335 - 260,335 - 260,335

Penalty from paid LCs - 19,480 19,480 - 19,480 - 5,599 5,599 - 5,599Penalty from paid guarantees - 7,752 7,752 - 7,752 - 60,406 60,406 - 60,406

Other - 25,215 25,215 10,666 35,881 - 14,456 14,456 - 14,4565,936,230 52,447 5,988,677 21,926 6,010,603 4,154,639 80,461 4,235,100 1,483 4,236,583



29.2 - Deposits Income(IRR million)

Consolidated19 Mar. 2016 20 Mar. 2015




Income from statutory deposit - 31,207 31,207 - 31,207 - 24,752 24,752 - 24,752

Income from term deposits 236,862 - 236,862 1,167 238,029 449,384 - 449,384 1 449,385

Income from participation bonds and fixed income securities

232,364 - 232,364 - 232,364 222,023 - 222,023 - 222,023

469,226 31,207 500,433 1,167 501,600 671,407 24,752 696,159 1 696,160

(IRR million)





Income from statutory deposit - 31,207 31,207 - 31,207 - 24,752 24,752 - 24,752

Income from term deposits 235,428 - 235,428 1,167 236,595 449,384 - 449,384 1 449,385

Income from participation bonds and fixed income securities

232,276 - 232,276 - 232,276 222,023 - 222,023 - 222,023

467,704 31,207 498,911 1,167 500,078 671,407 24,752 696,159 1 696,160

30 - Net income (loss) from investments


19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

Note Rial (mutual) Rial (mutual) Rial (mutual) Rial (mutual)

Accrued income (loss) from investmentsDividends 30.1 262,685 208,373 284,578 197,076 Income (loss) from sales of investments 30.2 (3,509) (21,582) (14,557) (21,582)Total 259,176 186,791 270,021 175,494

Income (loss) from increase (decrease) in value of investmentsNet income (loss) from increase (decrease) in value of investments

30.3 66,749 (192,850) 66,769 (192,870)

Net income (loss) from investments 325,925 (6,059) 336,790 (17,376)



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30.1 - Dividends are as follow:


19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

Rial (mutual) Rial (mutual) Rial (mutual) Rial (mutual)

Kardan Investment bank 177,015 91,075 165,846 79,000 Middle East Bank Brokerage Co. - - 15,000 675 Dadeh Pardazane Simaye Aftab Co. - - 118 101 Middle East Bank Currency Exchange Co. - - 19,010 - Dividends from investments in unlisted shares 177,015 91,075 199,974 79,776 Pension Fund Investment 15,695 21,464 15,695 21,464 JPC 12,115 14,353 12,115 14,353 National Development Investment Group 7,518 1,412 7,518 1,412 Khark Petrochemical 6,945 9,352 6,945 9,352 Iran Chemical Industries 6,670 8,924 6,670 8,924 Iran Tractor 3,900 - 3,900 - Iran Telecommunication 3,762 2,001 3,762 2,001 Zagros Petrochemical 3,403 4,432 3,403 4,432 Investment mines 3,102 3,010 3,102 3,010 Mobile communications 2,656 6,071 2,656 6,071 Middle East fund 2,339 - 2,339 - Mobarakeh Steel 2,081 2,386 2,081 2,386 Mazandaran Cement 1,718 1,974 1,718 1,974 Gol Gohar 1,320 1,980 1,320 1,980 Persian Gulf Petrochemicals 941 - 941 - Pars Minoo 936 587 936 587 Khorasan Petrochemical 936 882 936 882 Behshahr Industrial Development 759 1,050 759 1,050 Oil and gas investment 720 1,281 720 1,281 National Development Investment 681 1,822 681 1,822 Fars & Khuzestan Cement 640 640 640 640 Bandar Abbas Oil Refining 550 - 550 - Ghadir Investment 525 513 525 513 Isfahan Oil 511 1,622 511 1,622 Other companies 5,247 31,542 4,181 31,544 Dividend from investment in listed shares 85,670 117,298 84,604 117,300 Dividends 262,685 208,373 284,578 197,076



30.2 - Income (loss) from sales of investments is as follows:Consolidated

19 Mar. 2016 20 Mar. 2015NO. shares Sale value Cost Income(loss) Income(loss)

share IRR million IRR million IRR million IRR million

Income (loss) from sales of investments-LCY(mutual)Iran Khodro 2,550,438 24 6,040 (6,016) - IRANOL 705,599 1,087 4,443 (3,356) - Mellat Bank 879,799 469 3,048 (2,579) - Pars Minoo 1,849,926 296 2,823 (2,527) - Pakshoo 754,078 4,370 1,969 2,401 101 Khark Petrochemical 200,000 1,125 2,705 (1,580) - Marun Petrochemical 1,300,000 1,293 2,463 (1,170) - Behshahr Industrial Development 5,112,641 21,941 20,813 1,128 (509)Development of Mines and Industries Middle East 792,268 404 1,136 (732) - North Drilling 1,400,000 2,496 3,034 (538) (347)Ertebatat Sayar - - - - (3,547)Etela Alborz - - - - (2,518)Iran Transfo - - - - 2,468 Parsian Bank - - - - (2,342)Pasargad bank - - - - 2,046 Saderat bank - - - - 1,851 Power Mapna - - - - (1,844)Alborz Insurance - - - - (1,724)Dana insurance - - - - (1,706)Iranian Petrochemical - - - - (1,535)Tamin Petrochemical - - - - (1,359)Jam Petrochemical - - - - (1,261)Khorasan Petrochemical - - - - 1,170 Other companies 8,583,739 38,474 38,062 11,460 (10,526)

24,128,488 71,979 86,536 (3,509) (21,582)



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NO. shares Sale value Cost Income(loss) Income(loss)

share IRR million IRR million IRR million IRR million

Income (loss) from sales of investments-LCY(mutual)Iran Khodro 2,550,438 24 6,040 (6,016) - IRANOL 705,599 1,087 4,443 (3,356) - Mellat Bank 879,799 469 3,048 (2,579) - Pars Minoo 1,849,926 296 2,823 (2,527) - Pakshoo 754,078 4,370 1,969 2,401 101 Khark Petrochemical 200,000 1,125 2,705 (1,580) - Marun Petrochemical 1,300,000 1,293 2,463 (1,170) - Behshahr Industrial Development 5,112,641 21,941 20,813 1,128 (509)Development of Mines and Industries Middle East 792,268 404 1,136 (732) - North Drilling 1,400,000 2,496 3,034 (538) (347)Ertebatat Sayar - - - - (3,547)Etela Alborz - - - - (2,518)Iran Transfo - - - - 2,468 Parsian Bank - - - - (2,342)Pasargad bank - - - - 2,046 Saderat bank - - - - 1,851 Power Mapna - - - - (1,844)Alborz Insurance - - - - (1,724)Dana insurance - - - - (1,706)Iranian Petrochemical - - - - (1,535)Tamin Petrochemical - - - - (1,359)Jam Petrochemical - - - - (1,261)Khorasan Petrochemical - - - - 1,170 Other companies 8,583,739 38,474 38,062 412 (10,526)

24,128,488 71,979 86,536 (14,557) (21,582)



30.3 - Net income (loss) from increase (decrease) in value of investments in listed shares is as follows:(IRR million)

Consolidated

19 Mar. 2016 20 Mar. 2015

Book value Market value Income(loss) Income(loss)

Income (loss) from increase (decrease) in value of investments- Rials (mutual)

Investments in listed shares' portfolio 444,842 511,591 66,749 (192,850

(IRR million)


Book value Market value Income(loss) Income(loss)

Income (loss) from increase (decrease) in value of investments- Rials(mutual)

Investments in listed shares' portfolio 444,82 511,591 66,769 (192,870

31 - Bank’s share of mutual incomeBank’s share of mutual income is as follows:31.1 - Bank’s share of mutual income

Bank’s resource to mutual usagess(40-2) No. of shares Percentage of shares

% IRR million IRR million

21% 6,740,724 1,434,297

* If mutual usages are less than free resources of term deposits, bank’s resources and bank’s share of mutual income will be zero.

31.2 - Distribution of mutual resources and mutual usagess between bank and depositors

Title 19 Mar. 2016 20 Mar. 2015 Description


Average of mutual usagess( 31-2-1 ) 25,991,070 19,359,297 Average of 52 weeks

Average of depositors' term deposits(31-2-2) 23,201,649 17,837,596 Average of 52 weeks

less : statutory deposit of term deposits (2,740,979) (2,244,973) Average of 52 weeks

Term deposit's free resource 20,460,670 15,592,623Bank's share of mutual usagess (Additional free resources from term deposits) 5,530,400 3,766,674

* Bank’s share of mutual usagess is mutual usagess minus free resources of term deposits. If total of term deposit’s free resource is more than mutual usagess, the excess is called excess of free resources of term deposits.

31.2.1 - Average of mutual usagess(IRR million)

19 Mar. 2016 20 Mar. 2015

Mutual usages items Amount(average) Amount(average)

Net usages related to loans 22,996,328 15,669,856 Net usages related to participation bonds 876,673 886,265 Net usages related to term deposit in other banks 1,005,545 1,699,090 Net usages related to investments 1,112,524 1,104,086 Total usages related to mutual operation 25,991,070 19,359,297



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31.2.2 - Average of term deposits

(IRR million)

19 Mar. 2016 20 Mar. 2015

Term deposits Average Average

One year 8,924,584 4,392,400 Two year 24,832 135,390 Five year 3,799,216 5,387,532 Short term deposits 9,514,411 7,019,821 Short term deposits from other banks 681,538 394,635 Special short term deposits 257,068 507,818 Average of term deposits 23,201,649 17,837,596

31.3 - Interest from statutory deposit of term deposits

(IRR million)

Describe 19 Mar. 2016 20 Mar. 2015

Average of statutory deposit of term deposits 2,740,979 2,244,973 Interest from statutory deposit(rate = 1% of average of resource) 28,100 22,672

32 - The Bank’s chargesThe Bank’s charges was publishes in public newspaper at 6 May 2015, as 2.5 percent for financial year 2016 and is calculated base on that rate .

Average of free resources of depositors *Rate = Bank’s charges20,460,670 * 2.5% = 511,517

33 - Interest expense

(IRR million)


19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

Short term 1,851,601 1,300,489 1,859,685 1,304,444 Special short term 50,357 112,851 50,357 112,851 Long term depositsOne year 1,945,571 945,417 1,945,571 945,417 Two Year 5,255 28,787 5,255 28,787 Five Year 859,594 1,210,304 859,594 1,210,304 Certificates of deposits 2,873 429 2,873 429 Interbank deposits 162,657 99,124 162,657 99,124

4,877,908 3,697,401 4,885,992 3,701,356

34 - Interest expense

(IRR million)



Term deposits interest expense-LCY 34.1 4,877,908 3,697,401 4,885,992 3,701,356 Term deposits interest expense-FCY 24,760 5,278 24,761 5,280

4,902,668 3,702,679 4,910,753 3,706,636



34.1 - Reconciliation of income paid on account to investment deposits and term deposits interest expense-LCY

(IRR million)

Parent Co.

19 Mar. 2016 20 Mar. 2015

Income paid on account to investment deposits (note 33) 4,885,992 3,701,356 Overpaid interest to depositors (62,982) (254,374)Depositor's interest income 4,823,010 3,446,982 Overpaid interest to depositors 62,982 254,374 Term deposits interest expense-LCY 4,885,992 3,701,356

35 - Fee and commission income

(IRR million)


19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

On L/Cs issuance 11,804 8,338 11,804 8,338On guarantees issuance 285,097 172,101 285,097 172,133Foreign currency operation 13,879 9,032 13,879 9,032On remittance 16,145 6,668 2,632 6,668Collaterals Assessment 3,125 2,353 3,125 2,353Review of customers credit files 36,890 29,570 36,890 29,570On credit card - - - -Liquidity guarantee fee for mutual funds 6,138 999 6,138 999Amin contract guarantee fee 766 448 766 448Participation and guarantee fee 3,876 5,107 3,876 5,107SHETAB 3,299 2,049 3,299 2,049On share trading 57,694 44,143 - -Other services 26,075 8,189 22,753 6,387

464,788 288,997 390,259 243,084

36 - Fee and commission expenses(IRR million)


19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

SHETAB commission 108 1 108 1 POS transaction commission 8,511 2,679 8,510 2,679 Clearing house commission 1,069 1,653 1,069 1,653 Paid commission to brokerages 921 347 185 347

10,609 4,680 9,872 4,680

37 - Net foreign exchange transactions income(IRR million)


19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

Income (loss) from foreign currency buy and sell 22,560 3,979 4,660 3,979 Income (loss) from foreign exchange difference 45,744 56,024 45,695 56,014

68,304 60,003 50,355 59,993



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38 - Other income(IRR million)


19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

Income from sales of tangible fixed assets and intangible assets - 2,050 - 2,050 Rental revenue 400 - 5,200 - Others 816 48 1,103 48

1,216 2,098 6,303 2,098

39 - Administration and general expenses(IRR million)



Personnel expenses 39.1 299,840 210,037 275,812 195,505 Other administration expenses 39.2 299,032 166,293 265,245 148,627

598,872 376,330 541,057 344,132

39.1 - The details of personnel expenses are as follows:

(IRR million)


19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

Wages, salaries and allowances 253,067 179,642 234,500 165,110Insurance employer quota 26,147 16,411 23,304 16,411Staff termination benefits 17,157 11,548 15,574 11,548Travel and mission 3,437 2,436 2,434 2,436Others 32 - - -

299,840 210,037 275,812 195,505

39.2 - The details of other administration expenses are as follows:

(IRR million)


19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

Rent 35,425 25,308 34,078 25,308Training and research 3,818 3,335 3,818 3,335Communications 12,593 4,458 12,237 4,458Insurance costs 2,821 1,499 2,791 1,499Audit and consulting fee 24,956 6,192 16,749 6,192Transportation 1,966 2,092 1,966 2,092Power and Water 8,209 5,158 8,046 5,158Repayment and maintenance of tangible fixed assets 11,469 21,990 11,248 21,990Consumption items 18,905 23,019 17,920 22,017Board of directors benefits 9,700 9,000 9,600 9,000Fee payment 53,844 39,063 47,221 32,597Membership fee in associations 89,868 1,447 89,708 1,447Others 25,458 23,732 9,863 13,534

299,032 166,293 265,245 148,627



40 - Provision for bad and doubtful debts(IRR million)



Specific provision for bad and doubtful debts 40.1 104,362 22,260 104,363 22,260 General provision for bad and doubtful debts 40.2 94,699 125,768 94,998 126,549

199,061 148,028 199,361 148,809

40.1 - Specific provision for bad and doubtful debts is calculated as follows:

(IRR million)

Parent Co.

19 Mar. 2016 20 Mar. 2015

Pastdue loans

Outstanding loans

Doubtful debt Total Total

Balance 1,005,871 35,983 157,634 1,199,488 157,634Less : adjusted collateral's valuelands and estates (313,331) (15,807) (50,969) (380,107) (46,334)Basis for specific provision for bad and doubtful debts 692,540 20,176 106,665 111,300Ratio for specific provision for bad and debtful loans-% 10% 20% 50-100%Specific provision for bad and doubtful debts 69,255 4,035 53,333 126,623 22,260

40.2 - General provision for bad and doubtful debts is calculated as follows:

(IRR million)

19 Mar. 2016

Total

Balance at 21 Mar. 2015 29,166,717 Less:Balance of loans that specific provision has calculated (1,152,784)Basis for general provision for bad and doubtful debts 28,013,933 Ratio for general provision for bad and debtful loans-% 1/5 General provision for bad and doubtful debts at 19 Mar. 2016 420,209 General provision for bad and doubtful debts at 20 Mar. 2015 (325,211)General provision for bad and doubtful debts expense 94,998

41 - Finance costs(IRR million)


19 Mar. 2016 20 Mar. 2015

Overdraft penalty 109 6,342

42 - Depreciation and amortization(IRR million)


19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

Tangible fixed assets' depreciation 102,594 48,337 98,621 47,504 Intangible assets' amortization 34,493 1,536 34,095 1,173

137,087 49,873 132,716 48,677



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43 - Prior years adjustments(IRR million)


19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

Settlement of 2013 income tax (7,789) (62,964) (7,265) (62,440)

43.1 - In order to present an accurate picture of financial position and performance results, all comparative items in financial statements have been adjusted. Therefore some comparative items do not match with those of previous year’s financial statements.

44 - Reconciliation of profit before tax with cash flow from operating activities(IRR million)

Consolidated

19 Mar. 2016 20 Mar. 2015

Profit before tax 1,524,030 989,850Depreciation and amortization 137,087 49,873Net increase (decrease) in provision of staff termination benefits 17,663 10,293Profit (loss) from sales of tangible fixed assets and intangible assets - (2,050)Finance costs 109 6,342Effect of exchange rate fluctuation on cash 12,047 41

1,690,936 1,054,349Net increase (decrease) in operating liabilitiesDue to banks and financial institutions 238,069 (1,428,456)Customers' current deposits 2,468,433 1,854,825Other liabilities and provisions-operating portion 277,325 42,472Term investment deposits 7,064,151 8,616,418Interest payable on investment deposits (87,940) 84,139

9,960,038 9,169,398Net increase (decrease) in operating assetsDue from banks and financial institutions (991,276) (105,380)Loans (6,573,554) (8,393,435)Investment (2,092,324) 196,650Due from Subsidiaries and associates (89,990) (93,167)Other accounts receivable (618,679) 101,252Statutory deposit (207,789) (980,455)Other assets-operating portion (71,217) (67,786)

(10,644,829) (9,342,321)Net cash inflow from operating activities 1,006,145 881,426



(IRR million)

Parent Co.

19 Mar. 2016 20 Mar. 2015

Profit before tax 1,500,520 961,266Depreciation and amortization 132,716 48,677Net increase (decrease) in provision of staff termination benefits 14,389 8,560Profit (loss) from sales of tangible fixed assets and intangible assets - (2,050)Finance costs 109 6,342Effect of exchange rate fluctuation on cash 12,047 41

1,659,781 1,022,836Net increase (decrease) in operating liabilitiesDue to banks and financial institutions 238,069 (1,418,114)Customers' current deposits 2,510,627 1,858,051Other liabilities and provisions-operating portion 264,492 58,601Term investment deposits 6,991,082 8,633,490Interest payable on investment deposits (88,315) 84,885

9,915,955 9,216,913Net increase (decrease) in operating assetsDue from banks and financial institutions (991,276) (105,380)Loans (6,621,427) (8,416,549)Investment (2,085,867) 114,750Due from Subsidiaries and associates (153,652) (70,443)Other accounts receivable (516,982) 112,993Statutory deposit (207,789) (980,455)Other assets-operating portion (33,288) (29,199)

(10,610,281) (9,374,283)Net cash inflow from operating activities 965,455 865,466



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45 -

Off

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No.

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mill

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No.

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Cur

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42,

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45.2 - Issued guarantees

45.2.1 - Guarantees-FCYConsolidated and Parent Co.

19 Mar. 2016 20 Mar. 2015

FCY IRR million IRR million IRR million

EUR 34,228,474 1,161,543 41,923,522 1,264,246AED 3,198,598 26,337 - -USD 22,457,948 679,128 5,343,187 149,577INR 26,000,000 11,778 - -IQD 2,402,718,500 65,690 2,430,948,301 60,093CNY 4,990,143 23,229 4,990,143 22,550GBP 165,000 7,110 165,000 6,880

1,974,815 1,503,346

45.2.2 - Guarantees-LCYConsolidated and Parent Co.

19 Mar. 2016 20 Mar. 2015


Guarantees-LCY 14,775,364 10,276,387

45.3 - Other commitments(IRR million)


19 Mar. 2016 20 Mar. 2015


Commitments for bonds' guarantee 835,740 835,740 Commitments for AMIN contracts 121,790 45,150

957,530 880,890

45.4 - Managed funds


19 Mar. 2016 20 Mar. 2015


Loans paid from managed funds 70,154 -

46 - Capital commitments and contingent liabilitiesThe bank has no capital commitments and contingent liabilities on the balance sheet date.

47 - Earning per share

47.1 - Basic earning per shareThe calculation of basic earning per share has been based on the profit attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding. Weighted-average number of ordinary shares (basic) is 4,000,000,000 shares.

48 - Subsequent eventsFrom the date of the balance sheet to the date of the approval of the financial statements, no event which needed to be disclosed in financial statements has occurred.



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49 - Bank risksBank faces the following types of risk:Credit riskLiquidity riskMarket riskOperational risklevel of influence of risks on different types of banking is illustrated by the following chart.

49.1 - The relation between types of banking and the associated major risks.

49.2 - Risk management structure is as follows:“Risk Management in MEB consists of Risk Committee (RC) and risk department. The duties of the RC are modeled based on the Basel document entitled “Guidelines - corporate governance principles for banks”, issued in October 2014. The RC consists of five Board members and the head of risk department (or senior risk manager - SRM). SRM is responsible for reporting risk related mat-ters to RC, discussing relevant information with members of the RC/Board members, as well as executing various resolutions of RC.

Risk department operates under the guidance of risk committee (RC) and carries the policies set forth by the RC. The risk depart-ment is headed by the SRM and employs four additional risk analysts. The risk analysts and SRM share the duties of credit risk modeling, credit risk rating and liquidity risk measurements.

Middle East Bank

Retail banking

Credit risk: noMarket risk: noLiquidity risk: lowOperational risk: medium

Credit risk: low to mediumMarket risk: lowLiquidity risk: lowOperational risk: medium

Corporate banking

Board of directors

CEO

Senior risk manager

Administrative risk management unit

Risk committee consists of the head of the board, three other board members, and risk senior manager



49.3 - Credit risk

49.3.1 - Credit risk definitionThe Basel Committee on Banking Supervision (or BCBS) defines credit risk as the potential that a bank borrower, or counter party, will fail to meet its payment obligations regarding the terms agreed with the bank. It includes both uncertainty involved in repayment of the bank’s dues and repayment of dues on time.

49.3.2 - MEB’s policies regarding credit riskMEB’s credit extension policies ensure CBI’s rules and regulations are properly implemented. MEB’s primary credit clients are incorporated entities with whom MEB develops and maintains strong long-term banking relationships. However, natural persons who manage their business activities personally and are not under a legal umbrella are welcomed and treated as proprietorships. Obviously in such cases, Chamber of Commerce registration and a proper tax code are necessities prior to extension of any loans. Concentration of MEB’s credit is in short-term requirements of its clients; namely inventory and receivable financing. Even international activities are limited to the importation of raw materials, spare parts and finished consumer goods. MEB occasionally arranges and participates in syndicated guarantee loans when funding is provided through the capital market or State financed, National Development Fund.The principles of Middle East Bank for extension of credit:

1. Knowing the client and his/her credibility. Credit measurement is performed such that it is an indicator of ability and capacity of the client in paying back the loans. Making sure that the loan usage is monitored, and that the resources for repayment are identified and recognized by the bank.

2. The approved loans are valid for at most one year. The branches are required to periodically check the documents and financial statements in order to make sure that documents are compliant with the loans’ covenants.

3. The interest rate charged, and the required collaterals depend on the clients credit worthiness and client’s history with the bank.

4. Bank makes sure that the collaterals are unencumbered and have high degree of liquid ability.

5. Clients’ receivable checks from their own customers and identifying the validity of these checks confirms the clients business viability and these checks can be endorsed for collection by the bank. These receivable checks constitute one method of loan repayment.

6. The level of activity of the deposit and current accounts of the borrower are periodically checked in order to verify that the level of activity is conforming with the loan covenants.

7. The credit quality and operations of the client are periodically checked to make sure that the borrower is conforming with loan covenants.

8. The borrowers are credit risk rated by the risk department. The capacity of the borrower is also evaluated and then the credit committees set loan conditions and collaterals accordingly.

9. For SMEs and corporate borrowers, at least three years of audited financial statements are required to obtain a reasonably good credit risk rate .

10. Collateral quality and amount is dependent on the credit risk rate evaluation of the risk department. Borrowers with bad credit risk rate are required to provide substantially higher level of liquid collaterals.

11. MEB has set its policy to maintain a minimum weighted average credit rating of B+ for its loan portfolio.

12. In general, approval and extension of large credit loans are concentrated in MEB’s headquarter.

13. It is the policy of the bank that after the Credit Department evaluates a borrower to be credit worthy, it must inform the risk department and provide all required information to risk department for proper credit risk rating. The credit risk rate should be taken in consideration for setting covenants and collaterals of the loan.

14. The risk department periodically reports to the Risk Committee and to the Board. The reports discuss the portfolio concentrations in credit risk, industry, borrower type, collaterals, etc.

49.3.3 - Administrative units of risk departmentThe risk management department is an administrative unit; it has no separate sub-units for specific risk types, instead, the risk analysts are assigned different tasks by the SRM and cover all risk types including credit risk.



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49.3.4 - Different levels of institutional authority to approve loans and commitmentsIn general, Middle East bank’s credit issuance decision makings are centralized at the headquarter. Considering the amount of credit requested, approvals will be carried out by the following authorities:

1. Branches - for credits less than 4 billion Rials and commitments less than 8 billion Rials. Since ME Bank’s strategy is to offer banking services to mostly corporate customers, Branch credit committees should use their authority in order to attract, consolidate and expand depositor customers.

2. Central credit committee - for loans less than 20 billion Rials and commitments less than 100 billion Rials.

3. Supreme credit committee - for loans less than 150 billion Rials and commitments less than 300 billion Rials (combined loans and commitments must not exceed 400 billion Rials.

4. The Board of directors - for loans more than 150 billion Rials and commitments more than 300 billion Rials.

49.3.5 - Methods of reducing credit risk

Currently, considering the lack of appropriate financial instruments, the only way to soothe the credit risk is to take collaterals and guarantees at the discretion of the decision makers considering the analysis of financial statements and the credit rate of the client performed by the risk management department, past behavior of the client, payment history, visiting the business site by account officers, and monitoring the consumption of the loan. Moreover, the presence of seasoned lawyers of ME Bank in charge of designing contracts and following up law cases helps ME Bank to reduce the credit risk to a great extent.

49.3.6 - Credit rating procedureMore than 90% of ME Bank’s loan takers are legal persons and giving loan to natural persons are done based on their business activities.

Besides from complying with the CBI rules, all customers seeking loans and commitments must be assessed by risk departments in terms of credit risk and this assessment must be done independently of credit department. Credit risk scoring of the customers is carried out based on the following major elements: 1- Three years of financial statements 2-Risk management department’s assessment of the customers’ cash flow from operating activities to pay back the principal and interest portions of the loans. 3- Qualitative elements including competition ability and managerial ability 4- Past payment behavior

The summary of loans and commitment credit granting procedure to legal and natural persons running business is as follows:

1- Submitting request, information, and the required documents through CARM system which is available at the bank’s website (http://carm.middleeastbank.ir), it includes the company registration and management information, operational licenses, history, and financial information.

2-After filling the required information by the customer, the relationship manager check the data and contact the customer for any additional information or corrections.

3- Having the case completed by the relationship manager, the case will be referred to risk department to find a primary risk score.

4- The customers information gets processed by a computer program to produce the primary risk score.

5- The credit status of the customer is then analyzed more precisely by risk analysts to obtain the final risk score.

6- The risk score obtained by risk management department will play a key role for credit granting and specifying collaterals.

7- Loan granting process for natural persons is usually considered regarding a specified business activity. The need for working capital and commitments is assessed. This kind of customers form less than 10% of our customers. Their tax declaration is the base of risk management department analysis.

8- The equity ratio of the customer must meet the CBI’s standard.

49.3.7 - Credit quality analysisThe quality of bank assets, including loans, commitments and investments, the type and amount of collaterals taken and adequacy of collaterals taken (loan to value ratio) is illustrated by the following tables from risk department point of view.

49.3.7.1 - Analysis of credit quality of loans and funded commitments and investments based on the bank’s internal credit rating“Credit quality analysis table regardless of the value of collaterals and on the basis of a review of financial statements, ability to pay principal and interest on loans and payment behaviour of customers in the past is provided. Level 1 loans (low risk) are those in



which customers have paid back completely with less than three days in average late payment and B or higher risk rate. Level 2 loans (medium risk) are those in which customers had late payment in the past but for the current loan they have paid back completely without change in the asset class and in average have B- to CCC- risk score. Level 3 loans (high risk) are those who have CC to C risk rate and all overdue loans. Level 4 loans (nearly doubtful) are those who have been “suspended” or “doubtful” in 19 Mar. 2016. For better comparison, the following table illustrates the loans and their correspondent collateral value.

As for risk levels for commitments, the same risk level of the loan of that customer has been used. As for investments, long-term investmens have been considerd as “low risk” and for short-term investment (TSE listed companies) “medium risk” has been considered.”

Credit quality analysis-IRR million

Title Loan Investments Commitments

19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

level1 - low risk 16,926,678 12,310,178 657,236 447,100 8,866,931 663,068

level2 - medium risk 9,343,033 8,736,838 637,692 708,181 9,828,730 6,306,286

level 3 - high risk 2,179,019 616,908 - - 562,265 5,480,412

level 4 - nearly doubtful 193,617 157,634 - - - -

Total gross amount 28,642,347 21,821,558 1,294,928 1,155,281 19,257,926 12,449,766

Provision for bad and doubtful debt (546,832) (347,471) (126,101) (192,870)

Net book amount 28,095,515 21,474,087 1,168,827 962,411

Investments include any securities with characteristics of property rights such as variety of stocks.

49.3.7.1.1 - Analysis of credit quality of loans granted to customers based on asset classes(IRR million)

Loan

19 Mar. 2016 20 Mar. 2015

Current loans 27,442,859 21,399,644 Past due loans 1,005,871 264,281 Outstanding loans 35,983 157,634 Doubtful debt 157,634 - Total gross amount 28,642,347 21,821,559 Provision for bad and doubtful debt (546,832) (347,471)Net book amount 28,095,515 21,474,088

49.3.7.2 - Credit quality of participation bonds and etc.(IRR million)

Analysis of credit quality

19 Mar. 2016 20 Mar. 2015

GovernmentalMinistry of Roads and City Planning 520 170,000 Government's development projects 74,138 277,900 Construction & Development of Transportation Infrastructure - 150,000 Islamic treasury bonds 1,165,818 -

1,240,476 597,900 Governmental companies bondsNational Iranian Oil Company 291,300 - Non-governmentalMapna - 2,502 Middle East Bank Ofogh mutual fund 57,037 - Kardan mutual fund 700,000 - Yekom Iranian mutual fund 191,040 -

948,077 2,502 2,479,853 600,402



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49.3.7.3 - Types and amounts of customers’ collaterals(IRR million)

Description 19 Mar. 2016 20 Mar. 2015

Collaterals from natural persons' loansParticipation bonds\sukuk 602,423 519,526 Shares 539,776 465,500 Deposit 462,624 181,578 Land and real states 5,255,173 5,231,522 Checks 3,865,951 3,882,435 Promissory notes 30,693 24,173 Stand-alone legally binding contract 9,689,144 5,489,181

Collaterals from corporation's loansParticipation bonds\sukuk 270 41,619 Shares 2,413,980 1,580,381 Unlisted stocks 324,619 279,950 Deposit 2,052,070 559,101 Land and real states 12,917,735 9,134,183 Checks 50,148,061 49,277,781 Promissory notes 18,753,310 8,902,494 Stand-alone legally binding contract 72,810,208 39,206,589

179,866,037 124,776,013 Amount above are based on Bank’s expert report.

49.3.7.4 - Loans classification(net) according to collateral’s market value is as below:(IRR million)


Loans to natural persons50% > 1,073,930 1,123,830 51-70% 164,947 860,972 71-90% 471,603 382,851 91-100% 169,386 65,919 100% < 1,138,350 125,200 Loans to corporate customers50% > 12,627,821 10,675,907 51-70% 1,277,962 1,367,441 71-90% 852,512 677,921 91-100% 573,008 339,572 100% < 9,745,996 5,854,475

28,095,515 21,474,088

*The amount of collateral’s market value is based on CBI’s regulations.

49.3.8 - Credit risk concentrationMEB’s credit risk management mostly concentrates on short-term loans that provide manufacturing, commercial or contracting firms and business owners with their working capital. Furthermore, investment companies and stock brokerage firms can get loan in order to facilitate their own customers investment activities in the condition that they bring all their banking activities to MEB. Generally, Future operational cash flow forecast must confirm firms’ ability to reimburse principal and interest of the loan received. Thus, credit risk management’s concentration is in its minimum level for personal loans, mortgages, consumption loans or long-term project financing. Although MEB might contribute in national projects with other banks as syndication to ensure project’s profitability.At the moment, risk management department does not rate individuals and brokerage firms based on financial statements, but tries to cover the risk by substantiating customer’s reputation, experience, history of its activity with MEB and other banks and obtaining guarantees. Risk management department is developing internal rating models to cover brokerage firms, leasing companies, investment companies, currency exchange firms and individuals.



On average, facility applicants have B+ or higher credit rate. Based on definition, at the moment customer with B+ or higher credit rate has ability to reimburse received loans. Although bad economic situations of the country might cause these kind of customers face difficulties.Collateral received from customers with credit rates lower than average are much higher than those with credit rates higher than average (B+ to AA). Amount of collateral based on credit rates ensure risk management they expected loss would be lower than one percent.If loans or commitments concentration increases in a specific area, bank tries to control or decrease loans and commitments in that area. Risk management department periodically prepares reports about loans concentration in different areas for risk committee/board of directorsRisk acceptance amount in Middle East Bank differs based on the level of loans and deposits and other existing risks. For instance, if the loan to deposit ratio exceeds approximate level of 85%, bank tries to lower this ratio by carefully selecting customers and maintaining its liquidity position at a favorable level. Also, if bank notices that average risk factor of loans exceeds its usual level (based on capital adequacy ratio calculation in Basel III), it prefers to give loans to customers with higher credit rates.Giving Loans and making commitments take place by considering relationships in any kind and by observing huge Loans and commitments regulation approved by Money and credit council.

49.3.8.1 - Loan and investment distribution based on economic sectors and geography(IRR million)

Loan Investment in stocks

March 19, 2016 March 19 2015 March 19, 2016 March 19 2015

Book value 28,095,515 21,474,088 1,168,827 962,411 Amount of loans based on economic sectorsIndustrial 9,889,208 6,918,472 529,846 572,405 Housing 4,338,082 3,237,209 - 217 Commercial 10,026,729 8,731,885 - - Services 2,831,182 1,670,154 730,082 538,278 Agriculture 512,728 78,401 - - Mining 442,493 837,890 35,000 44,381 Other 55,093 77 - - Accumulated decrease in value - - (126,101) (192,870)

28,095,515 21,474,088 1,168,827 962,411 Amount of loans/commitments inside/outside of the countryInside the country 28,095,515 21,474,088 1,168,827 962,411 Outside the country - - - -

28,095,515 21,474,088 1,168,827 962,411

49.3.8.2 - Managing non-performing loans

Loans increase during the year Loans balance at the balance sheet date

AmountIRR million

% of totalPercentage

AmountIRR million

% of totalPercentage

profit sharing contracts Natural persons 1,147 0.0% 1,146 0.0%Corporate customers - 0.0% 77 0.0%

Trading contracts Natural persons 8,645,333 6.8% 2,945,371 10.3%Corporate customers 117,760,704 93.2% 25,695,753 89.7%

126,407,184 28,642,347

49.3.9 - Managing non-performing loansThe committee of “Supervision and collection of loans and receivables” meets every week to follow through with the status of the Non-performing loans, and the required legal actions in order to collect bad loans and receivables. The committee members are the managing director, the deputy to managing director, legal advisor to managing director, the assistant managing director in credit department, the managers of the credit department, the manager of finance department, the manager of legal department, and the manager of credit operations department. During the financial year ended March 19, 2016, this committee has met 46 times.



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The decisions made in this committee are sent to relevant departments to follow through. The loans and receivables that are late for more than 60 days are categorized as overdue and are put on the committee’s agenda for decision making.When the following through with a non performing client does not result in the desired collection or settlement, then the case is sent to legal department for raising the case with the Judiciary for collection and possibly the liquidation of collaterals according to the laws and regulations and as required.

49.3.9.1 - Distribution of non performing loans based on economic sectors(IRR million)

Balance of non-performing loans specific provision Net of non-performing loans

19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015 19 Mar. 2016 20 Mar. 2015

Distribution of non performing loansIndustry 210,265 11,273 (12,905) - 197,360 11,273 Housing 19,963 - (1,070) - 18,893 - commercial 904,818 332,249 (109,716) (22,260) 795,102 309,989 Services 64,442 23,509 (2,932) - 61,510 23,509 Agriculture - - - - - - Mine - 54,884 - - - 54,884 Total 1,199,488 421,915 (126,623) (22,260) 1,072,865 399,655

49.3.10 - Capital needed to cover credit riskThe amount of capital needed to cover the credit risk of the assets is 2,761,170 million Rials and its calculations presented in table 49-3-10-1. Capital adequacy base of the Bank balance sheet date 49-7-1 note, the sum of millions of Rials 3,454,028 surplus, to cover credit risk.

49.3.10.1 - Calculation for capital needed to cover credit risk

Type

19 Mar. 2016

Assets and Commitments

Risk factor Risk amount Allocated capital

IRR million % IRR million IRR million

Due from banks and financial institutions 1,159,736 20 231,947 18,556 Non governmental participation bonds 948,077 100 948,077 75,846 Investment in shares 1,168,827 100 1,168,827 93,506 Accounts receivable 1,166,788 100 1,166,788 93,343 Loans that are guarantee with real states 9,589,853 50 4,794,927 383,594 Other loans 19,052,494 100 19,052,494 1,524,200 Net of fixed assets and goodwill 2,763,709 100 2,763,709 221,097 Other assets 118,221 100 118,221 9,458 Guaranty for non-governmental participation bonds(Credit Conversion Factor = 50%) 417,870 100 417,870 33,430

Commitments for guarantees issued(Credit Conversion Factor = 20%) 2,980,951 100 2,980,951 238,476 Commitments for guarantees issued(Credit Conversion Factor = 50%) 250,087 100 250,087 20,007 Commitments for letter of credit issued(Credit Conversion Factor= 20%) 351,153 100 351,153 28,092 Commitments for letter of credit issued(Credit Conversion Factor =50%) 147,772 100 147,772 11,822 Other commitments(Credit Conversion Factor =100%) 121,790 100 121,790 9,743 Total 40,237,328 34,514,613 2,761,170

49.4 - Liquidity risk

49.4.1 - Liquidity risk definitionLiquidity risk is caused by bank’s inability to repay its short-term liability. Liquidity risk is usually intensified by the lack of enough assets with high liquidity and because of the inability to liquidate other assets fast to repay short-term liability.



49.4.2 - Liquidity management policyIn order to control liquidity risk or be sure of the bank’s ability to repay its short-term debt, its needed to define bank’s asset management and resource collection.MEB’s asset management policy, as last years is based on giving short-term loans to firms and establishing long-term relationships with corporate clients. For financial year ended March 19, 2016, bank’s short-term loans portfolio comprised 68% of its total asset. Major part of this portfolio was allocated to short-terms loans to provide working capital for firms and individuals who run businesses for buying raw materials, sales on credit, etc. Corporate clients would be rated based on their financial reports, cash flows and ability to repay principal and interest of the given facility from their revenues. MEB’s has a policy that states its investment on TSE listed companies must be at a minimum level. For financial year ended March 19, 2016, these investments comprised 1.2% of total asset. Long-term investments comprises 1.5% of total asset and include investment on life insurance company, brokerage firm, currency exchange company and investment company in order to facilitate other financial needs of clients beside investment on an IT firm to develop bank’s systems. Because of the economic situations, MEB has continued its conservative approach of liquidity management by maintaining highly liquid assets (cash and cash equivalent, contribution bonds or other assets with active market) composing 11% of total asset. About 7% of banks asset consist of fixed, intangible and other assets which are employed for bank’s main operations.MEB’s resources are mainly collected from 3 sources: 1- Cash flows from corporate clients and individuals related to those clients 2- Customers who have good long-term relationship with MEB for their asset management and 3-Other customers with low worth deposits. For financial year ended March19,2016, 1000 out of 21000 deposit customers supplied about 90% of banks resources. Major deposit customers have continued their loyalty and close relationship with MEB.

49.4.3 - Administrative units for liquidity risk managementMEB’s risk management department has one administrative unit and does not have different units for each risk of the bank. Risk department’s experts cover other risks of the bank by switching responsibilities assigned by the senior risk manager.

49.4.4 - Liquidity risk assessment methodologyLiquidity risk assessment is based on some traditional models and Basel3 models. Traditional models include loans to deposits ratio, highly liquid assets to total assets ratio and liquidity gap ladder. Basel3 models include liquidity coverage ratio (LCR) and net stable funding ratio (NSFR). LCR indicates bank’s ability to recover deposit outflow in crisis situation for a 30-day period. According to Basel3, this ratio must be at least 100% and for financial year ended 2016, it is 73% in MEB. NSFR is defined as the amount of resources bank assumes to be available in long-term per the amount bank needs to operate in long-term. This ratio must at least be 100% which for MEB it is 137% for financial year ended 2016.

49.4.5 - Liquidity risk control & monitoring proceduresTo ensure that the bank’s path is aligned with defined policies in 49-4-2 note and to control liquidity risk and managing cost and resource, finance department every day provides the seniors managers of the bank with a status report of deposits, given loans, bank’s various assets and liabilities, assets profitability and cost of resources. Every week costs and resources status would be reviewed with the presence of senior managers and based on these reports decisions would be made in order to progress the affairs. In appropriate times, risk management department prepares reports about calculation of liquidity gap, liquidity coverage ratio and net stable funding ratio to senior managers and board of directors. Based on defined acceptable ratios including liquidity ratios, necessary decisions would be made for liquidity management. For liquidity risk, these decisions include decrease or increase in loans amount which causes increase or decrease in bank’s liquid assets. MEB tries loans to resources ratio not to be more than 85%. In case of liquidity gap, bank maintains a significant positive balance for the period less than 3 months.

49.4.5.1 - Liquidity reserves

(IRR million)

Description Year ended 19 Mar. 2016 Year ended 20 Mar. 2015

Due from CBI 66,317 97,099 Due from banks and financial statements 1,326,599 1,266,042 Governmental bonds 1,531,776 597,900 Non-governmental bonds 948,077 2,502 Investments in listed shares 511,591 515,311 Total 4,384,360 2,478,854



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49.4.5.2 - Liquidity ratiosAt the begin-

ning of the period

Ave Max Min At the end of the period

% % % % %Cash and cash equivalent to total assets 8 10 15 5 11Cash and cash equivalent to total deposits 10 12 18 6 13Net liquid assets to total deposits* 3 7 14 1 5Loans to total deposits 88 87 83 88 83Loans to long-term deposits 171 184 200 185 214Non-maturity deposits to total deposits** 37 43 46 33 46

Cash and cash equivalent include cash, bonds and etc. which have active liquid market.

*Net liquid assets include cash, cash equivalent and investments which have active liquid market excluding other banks deposit, issued debts securities and other liabili-ties with less than one month maturity.**Non-maturity deposits include deposits which have no contractual maturity like current deposits, saving deposits and short-term deposits.

49.4.5.3 - Assets and liabilities gap analysisBelow table illustrates assets and liabilities according to their maturity that is possible to be withdrawn or settled

(IRR million)

2016

Book value Less than 1 month

Between 1 and 3 Months

Between 3 Months and 1

Year

Between 1 and 5 Years

More than 5Years

Non-specific maturity

Assets:Cash 1,392,916 1,392,916 - - - -Due from banks and financial statements 1,096,656 1,084,754 11,902 - - -Loans and advances 28,095,515 8,426,552 17,947,415 989,207 732,341 - -Investments 3,648,680 2,625,485 291,300 - 74,658 657,237 -Due from subsidiaries and associates 276,661 - - 276,661 - - -Other accounts receivable 890,127 521,930 13,700 66,205 199,946 41,589 46,757Tangible fixed assets 1,906,471 1,906,471Intangible assets 857,238 857,238Statutory deposit 3,099,233 1,598,576 190,465 1,016,142 292,781 1,269 -Other assets 118,221 - - 2,474 - 115,747 -Total assets 41,381,718 15,650,213 18,454,782 2,350,689 1,299,726 815,842 2,810,466Liabilities:Due to banks and financial statements (469,037) (162,383) (306,654) - - - -Customer current deposits (5,322,031) (4,031,785) (380,135) (856,647) (41,092) (12,372) -Dividends payable (4,718) (4,718) - - - - -Provision for income tax (138,743) - - (138,743) - - -Other liabilities and provisions (376,006) (6,055) (266,840) (88,888) - - (14,223)Staff termination benefits (31,462) - - - - - (31,462)Customers investment deposits (29,094,132) (6,228,722) (10,181,196) (9,138,903) (3,545,311) - -Interest payable (150,601) (144,427) (6,174) - - - -Total liabilities (35,586,730) (10,578,090) (11,140,999) (10,223,181) (3,586,403) (12,372) (45,685)Total shareholders’ equity (5,794,988) (5,794,988)Total liabilities and shareholders' equity (41,381,718) (10,578,090) (11,140,999) (10,223,181) (3,586,403) (12,372) (5,840,673)Gap 5,072,123 7,313,783 (7,872,492) (2,286,677) 803,470 (3,030,207)Accumulated gap 5,072,123 12,385,906 4,513,414 2,226,737 3,030,207 -Gap to base capital ratio 106% 154% -165% -48% 17% -64%Accumulated gap to base capital ratio 106% 260% 95% 47% 64% 0%



(IRR million)

2015




Year


More than 5Years


Assets:Cash 1,363,141 1,307,153 55,988 - - - -Due from banks and financial statements 105,380 105,380 - - - - -Loans and advances 21,474,088 7,579,417 12,890,723 1,003,486 462 - -Investments 1,562,813 517,814 - - 597,900 447,099 -Due from subsidiaries and associates 123,009 - - 123,009 - - -Other accounts receivable 374,120 298 15,951 104,925 216,577 11,713 24,656Tangible fixed assets 2,082,375 2,082,375Intangible assets 665,391 665,391Statutory deposit 2,891,444 2,043,758 61,192 248,987 537,507 - -Other assets 75,430 - - 3,641 - 71,789 -Total assets 30,717,191 11,553,820 13,023,854 1,484,048 1,352,446 530,601 2,772,422Liabilities:Due to banks and financial statements (237,253) (230,911) (6,342) - - - -Customer current deposits (2,811,404) (1,978,130) (33,145) (208,358) (591,771) - -Dividends payable (3,780) (3,780) - - - - -Provision for income tax (120,015) - - (120,015) - - -Other liabilities and provisions (111,514) (21,530) (2,506) (73,455) - - (14,023)Staff termination benefits (17,073) - - - - - (17,073)Customers investment deposits (22,103,050) (5,767,669) (10,621,499) (1,622,396) (4,091,486) - -Interest payable (238,916) (209,914) (29,002) - - - -Total liabilities (25,643,005) (8,211,934) (10,692,494) (2,024,224) (4,683,257) - (31,096)Total shareholders’ equity (5,074,186) (5,074,186)Total liabilities and shareholders' equity (30,717,191) (8,211,934) (10,692,494) (2,024,224) (4,683,257) - (5,105,282)Gap 3,341,886 2,331,360 (540,176) (3,330,811) 530,601 (2,332,860)Accumulated gap 3,341,886 5,673,246 5,133,070 1,802,259 2,332,860 -Gap to base capital ratio 75% 52% -12% -75% 12% -52%Accumulated gap to base capital ratio 75% 127% 115% 40% 52% 0%

49.4.5.4 - Contractual maturity analysis of financial liabilities49.4.5.4.1 - Below table illustrates financial liabilities according to their maturity that mentioned in related contract

(IRR million)

2016




Year


More than 5Years


Liabilities:Due to banks and financial statements (469,037) (162,383) (306,654) - - - -Customer current deposits (5,322,031) (4,031,785) (380,135) (856,647) (41,092) (12,372) -Customers investment deposits (29,094,132) (13,662,818) (2,747,100) (9,138,903) (3,545,311) - -Interest payable (150,601) (144,427) (6,174) - - - -Total (35,035,801) (18,001,413) (3,440,063) (9,995,550) (3,586,403) (12,372) -

2015




Year


More than 5Years


Liabilities:Due to banks and financial statements (237,253) (230,911) (6,342) - - - -Customer current deposits (2,811,404) (1,978,130) (33,145) (208,358) (591,771) - -Customers investment deposits (22,103,050) (14,638,755) (1,750,413) (1,622,396) (4,091,486) - -Interest payable (238,916) (209,914) (29,002) - - - -Total (25,390,623) (17,057,710) (1,818,902) (1,830,754) (4,683,257) - -



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49.4.5.4.2 - Below table illustrates financial liabilities according to their maturity that mentioned in related contract(IRR million)

2016




Year


More than 5Years


Liabilities:Due to banks and financial statements (419,931) (113,336) (306,595) - - - - Customer current deposits (463,051) (454,181) (8,870) - - - - Customers investment deposits (836,082) (8,497) (10,865) (85,656) (731,064) - - Interest payable (7,543) (3,321) (4,222) - - - - Total (1,726,607) (579,335) (330,552) (85,656) (731,064) - -

(IRR million)

2015




Year


More than 5Years


Liabilities:Due to banks and financial statements (214,865) (214,865) - - - - - Customer current deposits (791,768) (786,924) - (772) (4,072) - - Customers investment deposits (83,086) (8,663) (13,483) (60,940) - - - Interest payable (613) (378) (235) - - - - Total (1,090,332) (1,010,830) (13,718) (61,712) (4,072) - -

49-4-6- Program to cope with crisis (crisis testing)Middle East Bank, according to special circumstances of Iran economics during 2016 and recently years in which MEB has been established, follow a high conservative policy to liquidity management and capital preservation. To be aware of these policies can be referred to 49-4-2 and 49-4-4 notes.Accumulated gap for less that 3 months period is 7,313,783 million IRR which is 2.6 times the bank’s capital. This indicates the liquidity status of bank for less than 3 months is relevant.

49-5- Market risk

49-5-1- Market risk definitionMarket risk in MEB raised from 3 causes: 1-Change in short-term investments value of bank’s stock portfolio, 2-Change in deposits and loans rates and 3-Change in foreign Currencies Exchange rates.The equity stock portfolio of the bank is 1.2 percent of bank’s total assets , however, its major portion is allocated to listed corporates in TSE. The stock portfolio consists of 48 corporate shares (637,693 IRR Million), 41 corporates are listed companies in Tehran Stock Exchange (597,269 IRR Million) and others (40,424 IRR Million) are OTC companies.However, during 2015, interest rates have fallen as directed by the Central Bank of Iran, but profitability of bank has not experienced any significant change. IRRBB comprised a non-significant portion of overall risks of MEB because of the regulatory fixing of lending and deposits interest rates and an almost regulatory fixed flat yield curve. We have not observed any significant changes on profitability ratios due to regulatory changes on fixed rates of deposits and loans. However, regulatory interest rate risks remain where MEB may face loss of funds in case where MEB abides by the CBI rules on fixed interest rates and other banks may deviate significantly from CBI rules.



Foreign exchange rate risk in MEB arises from the off-balance sheet commitments related to imports of goods. MEB did not engage in direct market related foreign exchange activities or related hedging activities. MEB does not engage in profiting from changes to foreign currency exchange rates, however, occasionally, MEB would end up with open long or short positions in its normal activities for servicing clients engaging in import/export or other foreign exchange activities.

49.5.2 - Administrative units for market risk managementRisk management in MEB consists of integrated executive department and has not a separate unit for each type of risk. Risk experts by rotating in various responsibility that assigned by the senior risk management (SRM), in addition to market risk, cover other type of risks faced by bank.

49.5.3 - Method of market risk calculationMarket risk arises from stock investment calculated by Basel III and sharp model. According to Basel III, market risk can be calculated using the Value at Risk (VaR) methodologies. The “Value at Risk” calculation must be done based on 0.5% probability (one tail) using daily standard deviation and 10 days horizon time. Each bank must meet, on a daily basis, capital requirement illustrated as the higher of previous day’s value at risk or an average of the daily value at risk in 60 working days. According to Basel III notes, the capital requirement equals to VaR Amount *(3 + X) with X between 0 and 1. Our estimate of risk-weight of the short-term equity investments using a Basel-III Value at Risk model is 304% (the standardized Basel-III risk weight for equity investment in acceptable equity exchanges is 300%). The high risk weight of 304% imposes a policy of minimal and prudent equity investments in TSE listed companies. The annualized standard deviation of stock portfolio return is estimated to be 13% and annualized return is estimated to be 27.8%. Assuming risk-free rate for term deposits to be 22%, the risk premium for stock portfolio is estimated to be 5.8%. From the 5.8% risk premium and the standard deviation of 13% a Sharpe Ratio of 0.4 is calculated. The sharpe ratio 0.4 is too low (1.0 is considered ok), and considering the higher capital requirements for equity investments, MEB plans to further reduce its short-term equity investment. The following table shows the concentration of MEB’s investments in Tehran Stock Exchange (TSE).

49.5.4 - Stock and other market investment VaRVaR for stock investments and other market-oriented investments based on 10 days horizon time and 1% loss probability are calculated by below 2 methodology: single asset and variance-covariance.

Calculating VaR based on variance-covariance methodology (10 days horizon time and 1% Loss Probability)

2016 2015

Type of investments Potential Change in Market Price

Impact on Profit and Loss

Potential Change in Market Price


Percent IRR Million Percent IRR Million

Investment in listed shares (-6.1 , +6.1) 31,207 (-4.9 , +4.9) 25,561 Investment in unlisted shares - - - -

Calculating VaR based on single asset methodology (10 days horizon time and 1% Loss Probability)

2016 2015

Type of investments Potential Change in Market Price


Potential Change in Market Price



Investment in listed stocks (-14.4 , +14.4) 73,820 (-9.8 , +9.8) 50,478 Other strategic long-term investments - - - -



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Method 1: Single asset VaRAccording to foreign currencies single asset VaR methology, VaR for stock investments and other market-oriented investments has been illustrated in the following table.Currency portfoilio of bank consists of 11 currency so that Var is calculated by single asset methodology. VaR based on 10 days horizon time and 1% loss Plobability at 19 March,2016 has been calculated 1,750 IRR Million.Potential market price changes are calculated 10 days horizon time and 1% loss probability

2016 2015

Currency Type Potential change in market price

Impact on profit and loss

potential change in market price

Impact on profit and loss


USD (-.05,+.05) 21 (-0.5 , +0.5) 21 CHF (-.05,+.05) 3 (-7.7 , +7.7) - INR (-.03,+.03) 14 (-2.4 , +2.4) 59 AED (-.05,+.05) 5 (-0.5 , +0.5) 1 GBP - - - - TRY (-.07,+.07) 120 (-4.1 , +4.1) 74 IQD (-.1,+.1) 130 (-6.2 , +6.2) 78 CNY (-.03,+.03) - (-1 , +1) - KRW (-.05,+.05) 347 (-2.8 , +2.8) - EUR (-.07,+.07) 1,080 (-2.9 , +2.9) 98 OMR (-.05,+.05) 30 (-0.5 , +0.5) 88

1,750 419

Method 2: value at risk using variance-covariance methodAccording to the method of calculating the value at risk of foreign exchange assets in accordance with the variance-covariance method, The value at risk to invest in stocks and other investments have a market price is provided in the following table:The portfolio consists of 11 foreign exchanges that value at risk has been calculated. The value at risk of foreign exchange portfolio within 10 days and 99% confidence interval would be about 1.241 IRR Million.probable changes interval in market price within 10 days and 99% confidence for each foreign exchange has been calculated separately and the diversification effect is deducted.

2016 2015

Currency Type probable changes in market price

Value at risk probable changes in market price

Value at risk


USD (-0.3 , +0.3) 21 (-0.5 , +0.5) 21 CHF (-4.1, + 4.1) 3 (-7.7 , +7.7) - INR (-2.3 , +2.3) 14 (-2.4 , +2.4) 59 AED (-0.4, +0.4) 5 (-0.5 , +0.5) 1 GBP - - 0 - TRY (-4.7 , +4.7) 120 (-4.1 , +4.1) 74 IQR (-6.9, +6.9) 130 (-6.2 , +6.2) 78 CNY (-2 , +2) - (-1 , +1) - KRW (-3.5 , +3.5) 347 (-2.8 , +2.8) - EUR (-4 , +4) 1,080 (-2.9 , +2.9) 98 OMR (-0.5 , +0.5) 30 (-0.5 , +0.5) 88 Total 1,750 419 diversification effect (509) (193)With diversification effect 1,241 226



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49.5.6 - The amount of required capital to cover market risk using a single asset method

(IRR million)

Stock risk Foreign exchange risk Total contingen-cy reserved for

market riskMeasurement method Value at risk

(10days )contingency

reservedValue at risk


reserved

Historical simulation model 73,820 295,280 1,750 7,000 302,279

The amount of required capital to cover market risk using variance-covariance method(IRR million)

Stock risk Foreign exchange risk Total contingen-cy reserved for

market riskMeasurement method Value at risk


reservedValue at risk


reserved

Historical simulation model 31,207 124,828 1,241 4,968 129,796

49.5.7 - Interest rate sensitive asset and liability gap analysis

(IRR million)

2016




Year


More than 5Years


AssetsCash 1,392,916 - - - - - 1,392,916 Due from banks and financial statements 1,096,656 - - - - - 1,096,656 Loans and advances 28,095,515 8,426,552 17,947,415 989,207 732,341 - - Investments 3,648,680 2,625,485 - - 365,958 657,237 - Due from subsidiaries and associates 276,661 - - - - - 276,661 Other accounts receivable 890,127 890,127 Tangible fixed assets 1,906,471 1,906,471 Intangible assets 857,238 857,238 Statutory deposit 3,099,233 1,529,625 182,249 972,312 280,152 1,214 133,681 Other assets 118,221 118,221 Total assets 41,381,718 12,581,662 18,129,664 1,961,519 1,378,451 658,451 6,671,971 Liabilities:Due to banks and financial statements (469,037) (162,383) (306,654) - - - -Customer current deposits (5,322,031) (3,520,343) - - - - (1,801,688)Dividends payable (4,718) (4,718)Provision for income tax (138,743) (138,743)Other liabilities and provisions (376,006) (403) (305) (375,298)Staff termination benefits (31,462) (31,462)Customers investment deposits (29,094,132) (6,228,722) (10,181,196) (9,138,903) (3,545,311) - -Interest payable (150,601) (144,427) (6,174) - - - -Total liabilities per maturity (35,586,730) (10,056,278) (10,494,329) (9,138,903) (3,545,311) - (2,351,909)Shareholders' equity (5,794,988) (5,794,988)Total liabilities and shareholders' equity (41,381,718) (10,056,278) (10,494,329) (9,138,903) (3,545,311) - (8,146,897) Liquidity gap 2,525,384 7,635,335 (7,177,384) (2,166,860) 658,451 (1,474,926) Cumulative liquidity gap 2,525,384 10,160,719 2,983,335 816,475 1,474,926 -



(IRR million)

2015




Year


More than 5Years


AssetsCash 1,363,141 - - - - - 1,363,141 Due from banks and financial statements 105,380 - - - - - 105,380 Loans and advances 21,474,088 7,579,417 12,890,723 1,003,486 462 - - Investments 1,562,813 517,814 - - 597,900 447,099 - Due from subsidiaries and associates 123,009 - - - - - 123,009 Other accounts receivable 374,120 374,120 Tangible fixed assets 2,082,375 2,082,375 Intangible assets 665,391 665,391 Statutory deposit 2,891,444 1,981,386 59,324 241,388 521,102 - 88,244 Other assets 75,430 75,430 Total assets 30,717,191 10,078,617 12,950,047 1,244,874 1,119,464 447,099 4,877,090 Liabilities:Due to banks and financial statements (237,253) (230,911) (6,342) - - - -Customer current deposits (2,811,404) (1,576,418) - - - - (1,234,986)Dividends payable (3,780) (3,780)Provision for income tax (120,015) (120,015)Other liabilities and provisions (111,514) (111,514)Staff termination benefits (17,073) (17,073)Customers investment deposits (22,103,050) (5,767,669) (10,621,499) (1,622,396) (4,091,486) - -Interest payable (238,916) (209,668) (29,002) - - - (246)Total liabilities per maturity (25,643,005) (7,784,666) (10,656,843) (1,622,396) (4,091,486) - (1,487,614)Shareholders' equity (5,074,186) (5,074,186)Total liabilities and shareholders' equity (30,717,191) (7,784,666) (10,656,843) (1,622,396) (4,091,486) - (6,561,800) Liquidity gap 2,293,951 2,293,204 (377,522) (2,972,022) 447,099 (1,684,710) Cumulative liquidity gap 2,293,951 4,587,155 4,209,633 1,237,611 1,684,710 -

49.6 - Operational risk

49.6.1 - Operational risk definitionDefinition of operational riskPotential losses due from defined internal nank processes which are not well defined or are not defined completely or are defined incorrectly.Samples of operational risk. are losses due to intentional or unintential breakdowns, losses due to bank software application bugs and errors, losses due to events outside the Bank, or losses due to legal issues.Loses due to strategic decisions or damages resulting from strategic decisions are not considered operational risk.

49.6.2 - Administrative units for operational risk managementRisk management in MEB consists of risk committee (RC) and risk department. The duties of the RC are modeled based on the Basel document entitled “Guidelines - Corporate governance principles for banks”, issued in October 2014. The RC consists of four board members and the head of risk department (or Senior Risk Manager - SRM). SRM is responsible for reporting risk related matters to RC, discussing relevant information with members of the RC/Board members, as well as executing various resolutions of RC. Risk department operates under the guidance of risk committee (RC) and carries the policies set forth by the RC. The risk depart-ment is headed by the SRM and employs four additional risk analysts. The risk analysts and SRM share the duties of credit risk modeling, credit risk rating and liquidity risk measurements.

49.6.3 - Intentional and unintentional human errors preventive measureInternal audit, compliance department and risk management department each have control and monitoring systems and report sep-arately to board of directors on the implementation of the bank’s internal rules, current issues, problems or process improvement methods.



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Human capital Management holds training courses to familiarize employees with the rules and regulations of the Bank.Also, all employees are required to sign a commitment to carry out tasks correctly in terms of morality and in accordance with the Bank’s rules and regulations.Managers are responsible for the errors of their own staff and the effectiveness of managers in controlling the errors of their staff is examined in terms of lack of human errors.

49.6.4 - Program to cope with crisis (crisis testing)The crises of banking operations can be divided into the following groups: The crisis due to failure of information security systems, crisis due to failure of data communication lines, crisis due to physical damages to the Bank’s information systems, crisis due to in-accessibility of the Bank’s employees to their activity place for setting up banking systems. Middle East Bank has created replicated information system in different buildings in Tehran and keeps several copies of the Bank’s database in several location. The Bank also is setting a site for catastrophic events outside Tehran where information is copied with a few hours delay.Additionally, Middle East Bank holds training courses and operational safety drills and exercises for critical events.

49.6.5 - Operational risk measurement methodThe risk weight for operational risk is measured using Base II, the «Standardized approach». In this approach considering the type of clients who are mostly corporate client, the corporate business factor of 18% is chosen. The average of last 3 years gross income is calculate and then multiplied by 12.5. The result is added to the total risk weights of other risks such as credit risk and market risk for foreign exchange risk weights.

49.6.6 - Operational risk control & monitoring proceduresOperational risk management consultants and risk management department issue reports which would be reviewed in risk committee and board of directors committees and based on reported recommendations, necessary orders would be given by risk committee and bank’s CEO in order to establish better controls. Also internal audit, compliance and legal departments have their specific monitoring and make risk department aware of probable operational problems in the bank and risk management department executes necessary arrangements to solve the problems by presenting these reports to credit risk committee. Periodic reports of the result of implementing new controls would be presented to risk committee and risk committee gives necessary orders to reduce operational risks

49.6.7 - Necessary amount of capital to cover operational riskBased on Bank’s method to measure operational risk, capital exposed to this risk is:

(IRR million)

Measurement method Capital exposed to operational risk

Standard Method 262,450

49.7 - Capital management49.7.1 - Basic capitalBasic capital at balance sheet date is 6,215,197 million Rials and presented as follows:

(IRR million)


Tire IPaid up capital 4,000,000 4,000,000 Legal reserve 515,614 311,494 Retained earnings 1,279,374 769,959

5,794,988 5,081,453 Tire IIGeneral provision for bad and doubtful loans 420,209 325,211 Less: adjustment for 1.25% of risk weighted assetsLess: tier II over tier I - (3,182)Total of Tire II 420,209 322,029 Base capital before deduction 6,215,197 5,403,482 LessInvestment in other banks as subsidiaries - - Investment in other banks - (2,216)

- (2,216)Base capital 6,215,197 5,401,266

The amount of basic capital for the year ended 20 Mar. 2015 is approved by CBI as 4,764,448 million Rials in 1 Sep. 2015.



49.7.2 - Capital allocationTotal of risk-weighted Assets and commitments is 34,514,613 million Rials at balance sheet date.

19 Mar. 2016 20 Mar. 2015

Description Assets and com-mitments Risk factor

Risk-weighted assets and

commitments

Assets and commitments Risk factor

Adjusted Assets and

commitments

IRR million % IRR million IRR million % IRR million

Cash 213,519 - - 121,948 - -Statutory deposit 3,099,233 - - 2,891,444 - -Due from CBI 1,116,317 - - 97,099 - -Due from banks 1,159,736 20 231,947 1,249,474 20 249,895Governmental participation bonds 1,531,776 - - 597,900 - -Non-governmental participation bonds 948,077 100 948,077 2,502 100 2,502Investment in shares 1,168,827 100 1,168,827 962,411 100 962,411Accounts receivable 1,166,788 100 1,166,788 497,129 100 497,129Loans guaranteed by real states 9,589,853 50 4,794,927 7,013,378 50 3,506,689Other loans and receivable 19,052,494 100 19,052,494 14,808,181 100 14,808,181Fixed assets and goodwill 2,763,709 100 2,763,709 2,747,766 100 2,747,766Other assets 118,221 100 118,221 75,430 100 75,430Guaranty for non-governmental partici-pation bonds(Credit Conversion Factor = 50%)

417,870 100 417,870 417,870 100 417,870

Commitments for guarantees issued(Credit Conversion Factor = 20%) 2,980,951 100 2,980,951 2,049,083 100 2,049,083

Commitments for guarantees issued(Credit Conversion Factor = 50%) 250,087 100 250,087 344,366 100 344,366

Commitments for letter of credit issued(-Credit Conversion Factor= 20%) 351,153 100 351,153 52,442 100 52,442

Commitments for letter of credit issued(-Credit Conversion Factor =50%) 147,772 100 147,772 9,213 100 9,213

Other commitments(Credit Conversion Factor =100%) 121,790 100 121,790 45,150 100 45,150

Total of adjusted Assets and commit-ments based on risk 34,514,613 25,768,127

49.7.3 - Capital adequacy

(IRR million)


Base capital 6,215,197 5,401,266 Risk weighted assets 34,514,613 25,768,127 Capital adequacy ratio 18.01% 20.96%

49.7.4 - Leverage ratio

(IRR million)


Total assets 41,381,718 30,717,191Total shareholders' equity 5,794,988 5,074,186Leverage ratio 7.14 6.05



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50 - Operating segments

50.1 - Geographical concentration of major items of assets, liabilities and incomeAssets are reported by location and income and liabilities are reported based on residency location of the bank’s counterparty in gographical areas.

(IRR million)

Year ended 19 Mar 2016Iran Iraq Oman Turkey India Total

AssetsCash 1,230,574 1,570 30,817 123,779 6,176 1,392,916Due from banks and financial statements 1,084,754 - - - 11,902 1,096,656Loans and advances 28,095,515 - - - - 28,095,515Investments 3,648,680 - - - - 3,648,680Due from subsidiaries and associates 276,661 - - - - 276,661Statutory deposit 3,099,233 - - - - 3,099,233Tangible fixed assets 1,906,471 - - - - 1,906,471Intangible fixed assets 857,238 - - - - 857,238Total 40,199,126 1,570 30,817 123,779 18,078 40,373,370LiabilitiesDue to banks and financial statements (469,037) - - - - (469,037)Customer current deposits (5,322,031) - - - - (5,322,031)Customers investment deposits (29,094,132) - - - - (29,094,132)Interest payable (150,601) - - - - (150,601)Total 35,035,801- - - - - (35,035,801)Income 7,294,388 - - - - 7,294,388

(IRR million)

Year ended 20 Mar 2015Iran Iraq Oman Turkey India Total

AssetsCash 690,555 - 158,698 488,175 25,713 1,363,141Due from banks and financial statements 102,941 2,439 - - - 105,380Loans and advances 21,474,088 - - - - 21,474,088Investments 1,562,813 - - - - 1,562,813Due from subsidiaries and associates 123,009 - - - - 123,009Statutory deposit 2,891,444 - - - - 2,891,444Tangible fixed assets 2,082,375 - - - - 2,082,375Intangible fixed assets 665,391 - - - - 665,391Total 29,592,616 2,439 158,698 488,175 25,713 30,267,641LiabilitiesDue to banks and financial statements (237,253) - - - - (237,253)Customer current deposits (2,811,404) - - - - (2,811,404)Customers investment deposits (22,103,050) - - - - (22,103,050)Interest payable (238,916) - - - - (238,916)Total (25,390,623) - - - - (25,390,623)Income 5,220,542 - - - - 5,220,542



51 -

Tran

sact

ions

with

rel

ated

par

ties

51.1

- C

hang

es o

f sha

reho

lder

sD

urin

g th

e pe

riod

ende

d 19

Mar

201

6, T

osee

Noo

r Den

a In

vest

men

t Co.

has

bee

n in

clud

ed in

to s

hare

hold

ers

grou

p «m

ore

than

1 %

»with

pur

chas

ing

50,

767,

511

shar

es,

and

Tam

in A

tieh

Co.

has

bee

n om

ited

from

that

with

sel

ling

151,

576,

802

shar

e.

51.2

- Tr

ansa

ctio

ns w

ith m

anag

ers

(Man

ager

s in

clud

es C

EO, m

embe

rs o

f boa

rd a

nd e

xecu

tive

com

mitt

ee)

Ther

e w

ere

no tr

ansa

ctio

ns b

etw

een

man

ager

s an

d su

bsid

iarie

s du

ring

the

perio

d.

51.3

- Tr

ansa

ctio

ns w

ith re

late

d pa

rties

dur

ing

the

perio

d ar

e as

follo

ws:

2015

-16

Rel

ated

par

tyR

elat

ions

hip

Tra

nsac

tion

subj

ect

Is it

liab

le

to A

rtic

le

129

of T

rade

A

ct?

Pri

cing

met

hod

Tra

ns-

actio

n am

ount

Rat

e of

lo

ans

Profi

t (lo

ss)

Bal

ance

IRR

mill

ion

IRR

mill

ion

IRR

mill

ion

Subs

idia

ries

Dad

eh P

arda

zan

Sim

aye

Afta

b C

o. (J

avad

Java

di)

Subs

idia

ry a

nd c

omm

on b

oard

m

embe

rPr

epay

men

t for

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k’s s

oftw

are

7

8,09

3 6

1,28

7 D

ivid

end

118

-

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dle

Ease

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k B

ro-

kera

ge C

o. (J

avad

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di)

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omm

on b

oard

m

embe

r

Stoc

k tra

ding

in T

SE

2,0

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tal d

epos

it 3

,000

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s of o

ffice

furn

iture

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e ba

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r 1

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sTh

e ba

nk's

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r 1

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00

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rant

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ssue

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ivid

end

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le E

ast B

ank

Cur

ren-

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xcha

nge

Co.

Su

bsid

iary

and

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mon

boa

rd

mem

ber

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t of b

uild

ings

5

,200

5

,200

-

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aym

ent f

or o

pera

ting

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nses

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7,07

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ans

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2

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d 34

1

55

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iden

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ign

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ange

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ing

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ocia

tes

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dan

Inve

stm

ent B

ank

(Par

viz

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ili K

erm

ani)

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idia

ry a

nd c

omm

on b

oard

m

embe

rD

ivid

end

167

,875

1

67,8

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Prep

aym

ent f

or o

pera

ting

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nses

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bank

's bo

ard

mem

ber

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2

9

Mid

dle

Eas

t Ban

k (P

JSC

)N

otes

on

the

finan

cial

stat

emen

tsFo

r th

e ye

ar e

nded

19

Mar

. 201

6

Con

tinue

d on

nex

t pag

e


Man

agem

ent R

epor

tR

evie

w o

f Ris

ks a

nd D

iscl

osur

eR

epor

t of I

ndep

ende

nt A

udito

ran

d Fi

nanc

ial S

tate

men

tsSu

rvey

of t

he Ir

ania

n Ec

onom

y

2015

-16

Rel

ated

par

tyR

elat

ions

hip

Tra

nsac

tion

subj

ect

Is it

liab

le

to A

rtic

le

129

of T

rade

A

ct?

Pri

cing

met

hod

Tra

ns-

actio

n am

ount

Rat

e of

lo

ans

Profi

t (lo

ss)

Bal

ance

IRR

mill

ion

IRR

mill

ion

IRR

mill

ion

Mem

bers

of

boa

rd o

f di

rect

ors a

nd

seni

or e

xecu

tive

man

ager

s

Java

d Ja

vadi

Dep

uty

CEO

Loan

sTh

e ba

nk's

boar

d m

embe

r

24

114

6

50

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f loa

ns

The

bank

's bo

ard

mem

ber

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16

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266

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zbeh

Piro

uzB

oard

mem

ber

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sTh

e ba

nk's

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embe

r 2

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3,42

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yyed

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ein

Salim

iB

oard

mem

ber

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sTh

e ba

nk's

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r 2

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ajdi

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aria

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ecut

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ati

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utiv

e co

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f loa

ns

The

bank

's bo

ard

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ber

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nd 1

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lirez

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alat

Exec

utiv

e co

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f loa

ns

The

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ard

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ber

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nd 1

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34

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id N

ourm

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mad

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oans

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nk's

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d m

embe

r 7

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ara

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ecut

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mitt

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nk's

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iz A

ghili

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man

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eput

y ch

airm

an o

f boa

rd o

f di

rect

iors

and

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f loa

ns

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bank

's bo

ard

mem

ber

7

25

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srow

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ebi A

h-ra

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oans

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e ba

nk's

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r 7

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8 2

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8

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er re

late

d pa

rties

Fana

vari

Nav

a A

soud

eh

Co.

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a So

ltanz

adeh

)C

omm

on b

oard

mem

ber

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sTh

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nk's

boar

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r 2

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9

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an T

ejar

at P

arm

iss

Co.

(Rez

a So

ltanz

adeh

)C

omm

on b

oard

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ber

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sTh

e ba

nk's

boar

d m

embe

r 2

8 4

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-

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no C

onsu

lting

En

gine

ers C

o. (P

arvi

z K

hakp

our)

Com

mon

boa

rd m

embe

r

Con

sulti

ng e

ngin

eers

serv

ices

The

bank

's bo

ard

mem

ber

6,8

47

(429

)Lo

ans

The

bank

's bo

ard

mem

ber

24

5,0

77

18,

820

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rant

ees i

ssue

d Th

e ba

nk's

boar

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r 3

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9,62

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ans

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bank

's bo

ard

mem

ber

24

4,2

02

39,

358

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kam

Gol

chin

Co.

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mon

boa

rd m

embe

r Lo

ans

The

bank

's bo

ard

mem

ber

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3

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uara

ntee

s iss

ued

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bank

's bo

ard

mem

ber

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esh

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oh In

vest

-m

ent C

o.C

omm

on b

oard

mem

ber

Gua

rant

ees i

ssue

d Th

e ba

nk's

boar

d m

embe

r -

6,2

61

Sana

ye Ir

an In

vest

men

t C

o.C

omm

on b

oard

mem

ber

Loa

ns

The

bank

's bo

ard

mem

ber

24

7,1

43

47,

000

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nd M

arvd

asht

Co.

Com

mon

boa

rd m

embe

r L

oans

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e ba

nk's

boar

d m

embe

r 2

4 1

0,58

7 3

6,00

0 K

anaf

Iran

Co.

Com

mon

boa

rd m

embe

r L

oans

Th

e ba

nk's

boar

d m

embe

r 2

8 1

,124

-

Iran

Gac

h C

o.C

omm

on b

oard

mem

ber

Gua

rant

ees i

ssue

d Th

e ba

nk's

boar

d m

embe

r 1

-

Mid

dle

Eas

t Ban

k (P

JSC

)N

otes

on

the

finan

cial

stat

emen

tsFo

r th

e ye

ar e

nded

19

Mar

. 201

6


52 - Retained earning at the end of periodThe allocation of the closing balance of the retained earning is subject to the approval of the annual general meeting:

(IRR million)

Amount

Legal10 % of net profit of the period ended 19 Mar 2016 according to Act 90 Trade Law 136,080

The most attributable profit 1,022,129

Board's offer for dividendBoard's offer for dividend 1,000,000



Man

agem

ent R

epor

tR

evie

w o

f Ris

ks a

nd D

iscl

osur

eR

epor

t of I

ndep

ende

nt A

udito

ran

d Fi

nanc

ial S

tate

men

tsSu

rvey

of t

he Ir

ania

n Ec

onom

y

52 -

Ret

aine

d ea

rnin

g at

the

end

of p

erio

d

Row

Nam

e

Rel

atio

nshi

pO

wne

rshi

p pe

rcen

tage

Loa

ns b

alan

ce

Commitment balance

Total

Col

late

ral

Management/Auditors

RelativesShareholdersCorporationsSubsidiaries

Others

Direct

Indirect

Total

Am

ount

Rate

Period

Type

Disbursement date

Typ

e

Value

Perfoming loans

Non-per-forming

loans

IRR

mill

ion

IRR

mill

ion

1B

oard

mem

ber

0

0 4

9,13

2 0

283-

mon

thM

osha

reka

t m

adan

i

Dey

, Bah

man

, Es-

fand

94

(Jan

, Feb

, M

ar 2

015)

- 4

9,13

2 C

heck

and

Sta

nd-a

lone

le

gally

bin

ding

con

tract

an

d sh

ares

293,

806

2B

oard

mem

ber

0.27

6150

60.

2761

506

18,

820

024

3-m

onth

Mos

hare

kat

mad

ani

Bah

man

, Esf

and

94

(Feb

, Mar

201

5)28

,005

4

6,82

5 C

heck

,pro

mis

sory

not

e16

5,42

7

3B

oard

mem

ber

0.00

250.

0025

39,

358

024

3-m

onth

Mos

hare

kat

mad

ani

Dey

, Bah

man

, Es-

fand

94

(Jan

, Feb

, M

ar 2

015)

- 3

9,35

8 C

heck

and

Sta

nd-a

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le

gally

bin

ding

con

tract

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88

4B

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5105

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5105

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1,25

2 1

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5B

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ber

0 3

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0

243-

mon

thM

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4 (J

an 2

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3,0

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rom

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mitt

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0.22

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1,91

6 0

7 an

d 24

3-m

onth

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mon

th

Joal

eh a

nd

Mos

hare

kat

mad

ani

Dey

94

(Jan

201

5) -

21,

916

Che

ck a

nd S

tand

-alo

ne

lega

lly b

indi

ng c

ontra

ct

and

shar

es91

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7B

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mem

ber

0 4

7,00

0 0

243-

mon

thM

osha

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t m

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iD

ey, E

sfan

d 94

(J

an, M

ar 2

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0 C

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2872

5915

0.28

7259

15 2

1,64

6 0

7 an

d 15

60-m

onth

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mon

thJo

aleh

and

Fo

rous

h ag

hsat

i

Esfa

nd 9

2, D

ey

94 (M

ar 2

013,

Jan

2015

) -

21,

646

Che

ck a

nd sh

ares

43,8

66

9Ex

ecut

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com

mitt

ee0.

650.

65 2

1,63

2 0

7 an

d 15

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mon

thJo

aleh

and

Fo

rous

h ag

hsat

i

Esfa

nd 9

2, D

ey

94 (M

ar 2

013,

Jan

2015

) -

21,

632

Che

ck a

nd sh

ares

43,8

66

10Ex

ecut

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com

mitt

ee0.

125

0.12

5 4

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0

7 an

d 15

60-m

onth

Joal

eh a

nd

Foro

ush

aghs

ati

Dey

92

(Jan

201

3) -

4,5

35

Che

ck a

nd sh

ares

15,2

94

11Ex

ecut

ive

com

mitt

ee0.

125

0.12

5 6

,221

0

7 an

d 15

60-m

onth

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-m

onth

Joal

eh a

nd

Foro

ush

aghs

ati

Esfa

nd 9

2, D

ey

94 (M

ar 2

013,

Jan

2015

) -

6,2

21

Che

ck a

nd sh

ares

15,2

94

12Ex

ecut

ive

com

mitt

ee0

0 5

11

015

60-m

onth

Foro

ush

aghs

ati

Meh

r 93

(Oct

201

4) -

511

C

heck

714

Mid

dle

Eas

t Ban

k (P

JSC

)N

otes

on

the

finan

cial

stat

emen

tsFo

r th

e ye

ar e

nded

19

Mar

. 201

6

Con

tinue

d on

nex

t pag

e

MIDDLE EAST BANK ANNUAL REPORT152Row

Nam

e

Rel

atio

nshi

pO

wne

rshi

p pe

rcen

tage

Loa

ns b

alan

ce

Commitment balance

Total

Col

late

ral

Management/Auditors

RelativesShareholdersCorporationsSubsidiaries

Others

Direct

Indirect

Total

Am

ount

Rate

Period

Type

Disbursement date

Typ

e

Value

Perfoming loans

Non-per-forming

loans

IRR

mill

ion

IRR

mill

ion

13B

oard

mem

ber

0.55

5296

350.

5552

9635

32,

705

07

36-m

onth

Joal

ehD

ey 9

4 (J

an 2

015)

- 3

2,70

5 Sh

ares

66,3

63

14B

oard

mem

ber

1.16

3635

251.

1636

3525

22,

868

07

36-m

onth

Joal

ehD

ey 9

4 (J

an 2

015)

- 2

2,86

8 Sh

ares

46,4

01

15re

latin

g to

m

ore

than

5 %

sh

areh

olde

rs 3

6,00

0 0

243-

mon

thM

osha

reka

t m

adan

iB

ahm

an 9

4 (F

eb

2015

) -

36,

000

Che

ck a

nd S

tand

-alo

ne

lega

lly b

indi

ng c

ontra

ct

and

long

-term

dep

osit

115,

200

16re

latin

g to

m

ore

than

5 %

sh

areh

olde

rs 9

,000

0

243-

mon

thM

osha

reka

t m

adan

iEs

fand

94

(Mar

20

15)

- 9

,000

C

heck

and

Sta

nd-a

lone

le

gally

bin

ding

con

tract

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00

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latin

g to

m

ore

than

5 %

sh

areh

olde

rs -

043

,992

4

3,99

2 C

heck

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rant

eed

prom

-is

sory

not

e50

8,40

0

18Su

bsid

iarie

s 6

1,28

7 0

71,

787

19Su

bsid

iarie

s 1

14,6

49

015

and

24

11-d

ays,1

5-da

ysM

osha

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t m

adan

iEs

fand

94

(Mar

20

15)

542

182,

595

Che

ck,g

uara

ntee

d pr

om-

isso

ry n

ote,

cont

ract

231,

573

20Su

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s 1

68,8

75

0

590,

208

21Su

bsid

iarie

s 1

6,98

4 0

54,

984

Mid

dle

Eas

t Ban

k (P

JSC

)N

otes

on

the

finan

cial

stat

emen

tsFo

r th

e ye

ar e

nded

19

Mar

. 201

6


Man

agem

ent R

epor

tR

evie

w o

f Ris

ks a

nd D

iscl

osur

eR

epor

t of I

ndep

ende

nt A

udito

ran

d Fi

nanc

ial S

tate

men

tsSu

rvey

of t

he Ir

ania

n Ec

onom

y

54 -

Maj

or lo

ans a

nd c

omm

itmen

ts

Row

Beneficiary

Relationship

Maj

or lo

ans a

nd c

omm

itmen

tsC

olla

tera

lB

oard

's r

esol

utio

n

Loa

nsC

omm

itmen

ts

Cost of investment (4)

Disbursement date

Total

Typ

eV

alue

No.

Dat

e

PL (1)

NPL (2)

Gross

Net before applying

coefficient

Coefficient

Net (3)

5=1+2+3+4

1

Cus

tom

er

1-2-

215

4,11

520

16/0

1/19

15

4,11

5C

heck

and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty46

2,34

413

93/1

/336

1393

/12/

13 2

1

-2-2

1,

339

2015

/08/

03

1,33

9C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty3,

615

1394

/2/3

713

94/0

3/04

3

700

2015

/08/

09

700

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

1,89

013

94/2

/37

1394

/03/

04 4

43

520

15/0

8/17

435

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

1,17

413

94/2

/37

1394

/03/

04 5

1,

441

2015

/08/

261,

441

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

3,89

213

94/2

/37

1394

/03/

04 6

65

420

15/0

8/30

65

4C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty1,

767

1394

/2/3

713

94/0

3/04

7

1,03

020

15/0

8/31

1,

030

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

2,78

013

94/2

/37

1394

/03/

04 8

81

620

15/0

9/10

81

6C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty2,

203

1394

/2/3

713

94/0

3/04

9

2,75

520

15/0

9/21

2,75

5C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty7,

437

1394

/2/3

713

94/0

3/04

10

910

2015

/09/

28

910

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

2,45

813

94/2

/37

1394

/03/

04 1

1 1,

163

2015

/10/

03

1,16

3C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty3,

140

1394

/2/3

713

94/0

3/04

12

1,21

720

15/1

0/10

1,

217

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

3,28

613

94/2

/37

1394

/03/

04 1

3 1,

085

2015

/10/

26

1,08

5C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty2,

928

1394

/2/3

713

94/0

3/04

14

2,54

220

15/1

1/11

2,54

2C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty6,

863

1394

/2/3

713

94/0

3/04

15

1,46

720

15/1

2/20

1,

467

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

3,96

213

94/2

/37

1394

/03/

04 1

6 20

,378

2016

/02/

0620

,378

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

55,0

2113

94/2

/37

1394

/03/

04 1

7 32

,346

2016

/02/

10

32,3

46C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty87

,334

1394

/2/3

713

94/0

3/04

18

200,

000

2016

/02/

23

200,

000

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

540,

000

1394

/2/3

713

94/0

3/04

19

40,7

0020

16/0

2/24

40

,700

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

109,

890

1394

/2/3

713

94/0

3/04

20

191

,088

1

52,8

70

20%

30,

574

2015

/05/

12

30,5

74C

heck

and

pro

mis

sory

not

e37

4,53

313

94/2

/26

1394

/02/

15

21

366

,600

3

29,9

40

20%

65,

988

2014

/10/

21

65,9

88C

heck

and

pro

mis

sory

not

e76

2,52

813

94/2

/26

1394

/02/

15 2

2 1

52,0

00

136

,800

20

% 2

7,36

0 20

14/1

0/21

27

,360

Che

ck a

nd p

rom

isso

ry n

ote

316,

160

1394

/2/2

613

94/0

2/15

23

38,

029

34,

226

50%

17,

113

2016

/03/

16

17,1

13C

ertifi

ed c

heck

58,9

4513

94/2

/26

1394

/02/

15 2

4 1-

2-2

100,

000

- 20

16/0

1/20

10

0,00

0C

heck

and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty25

0,00

013

92/3

3413

92/0

9/04

25

1-2-

220

0,00

020

16/0

3/16

20

0,00

0C

heck

and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty53

0,00

013

92/2

/40

1392

/08/

20 2

6 2

44,4

00

219

,960

20

% 4

3,99

2 20

14/1

1/10

43

,992

Che

ck a

nd p

rom

isso

ry n

ote

508,

400

1393

/1/2

5613

93/0

8/14

27

1,7

42

1,3

94

20%

279

20

16/0

2/03

27

9C

heck

and

pro

mis

sory

not

e3,

240

1394

/1/3

0613

94/1

1/12

Sub

tota

l 7

65,0

92

- 9

93,8

60

875

,191

1

85,3

06

-95

0,39

84,

105,

790

Mid

dle

Eas

t Ban

k (P

JSC

)N

otes

on

the

finan

cial

stat

emen

tsFo

r th

e ye

ar e

nded

19

Mar

. 201

6

Con

tinue

d on

nex

t pag

e


Beneficiary

Relationship

Maj

or lo

ans a

nd c

omm

itmen

tsC

olla

tera

lB

oard

's r

esol

utio

n

Loa

nsC

omm

itmen

ts


Disbursement date

Total

Typ

eV

alue

No.

Dat

e

PL (1)

NPL (2)

Gross

Net before applying

coefficient

Coefficient

Net (3)

5=1+2+3+4

28

50,

000

2016

/01/

12

50,0

00C

heck

and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct

110,

000

1393

/1/2

6213

93/0

9/17

29

50,

000

2016

/01/

12

50,0

00C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct

150,

000

1393

/1/2

6213

93/0

9/17

30

50,

000

2016

/02/

02

50,0

00C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct

150,

000

1393

/1/2

6213

93/0

9/17

31

30,

000

2016

/03/

14

30,0

00C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct

90,0

0013

93/1

/262

1393

/09/

17 3

2 2

00,0

00

2016

/01/

2520

0,00

0C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty65

0,00

013

93/1

/261

1393

/09/

17 3

3 1

00,0

00

2016

/02/

28

100,

000

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

325,

000

1393

/1/2

6113

93/0

9/17

34

20,

000

2015

/12/

20

20,0

00C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct

74,0

0013

93/6

513

93/0

3/19

35

15,

000

2016

/01/

31

15,0

00C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct

55,5

0013

93/6

513

93/0

3/19

36

15,

000

2016

/03/

14

15,0

00C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct

55,5

0013

93/6

513

93/0

3/19

37

40,

000

2015

/12/

30

40,0

00C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct

118,

000

94/1

/130

1394

/05/

12 3

8 50

,000

2016

/01/

1250

,000

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

125,

000

94/1

/335

1394

/11/

26

39

3,26

820

16/0

1/09

3,

268

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

8,17

194

/1/3

3513

94/1

1/26

40

25,0

0020

16/0

1/17

25

,000

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

62,5

0094

/1/3

3513

94/1

1/26

41

50,0

0020

16/0

2/17

50

,000

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

125,

000

94/1

/335

1394

/11/

26 4

2 50

,000

2016

/03/

16

50,0

00C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct17

0,00

013

94/1

/371

1394

/12/

24 4

3 1,

602

1,44

120

%28

820

16/0

1/26

28

8C

heck

and

pro

mis

sory

not

e3,

331

1394

/1/3

7113

94/1

2/24

44

1,55

91,

403

20%

281

2016

/01/

26

281

Che

ck a

nd p

rom

isso

ry n

ote

and

depo

sit

3,24

313

94/1

/371

1394

/12/

24 4

5 1,

476

1,32

820

%26

620

16/0

1/26

266

Che

ck a

nd p

rom

isso

ry n

ote

and

depo

sit

3,07

013

94/1

/371

1394

/12/

24 4

6 2,

702

2,43

220

%48

620

16/0

1/26

486

Che

ck a

nd p

rom

isso

ry n

ote

and

depo

sit

5,62

013

94/1

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1394

/12/

24 S

ubto

tal

748,

268

-7,

339

6,60

51,

321

-74

9,58

92,

283,

936

47

Cus

tom

er

50,0

00

500

2015

/12/

26

50,5

00C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct 1

22,0

00

1394

/1/1

3913

94/0

5/17

48

50,0

0020

16/0

2/06

50

,000

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

122

,000

13

94/1

/139

1394

/05/

17

49

50,0

0020

16/0

3/02

50,0

00C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct 1

22,0

00

1394

/1/1

3913

94/0

5/17

50

835,

740

835,

740

50%

417,

870

2014

/06/

1641

7,87

0

51

3-2-

250

,000

2016

/02/

06

50,0

00C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct 1

10,0

00

1393

/91

1393

/04/

01

52

50,0

0020

16/0

2/24

50,0

00C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct 1

10,0

00

1393

/91

1393

/04/

01

Sub

tota

l 2

50,0

00

- 8

35,7

40

835

,740

4

17,8

70

500

6

68,3

70

586,

000

Mid

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on

the

finan

cial

stat

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tsFo

r th

e ye

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nded

19

Mar

. 201

6

Con

tinue

d on

nex

t pag

e


Man

agem

ent R

epor

tR

evie

w o

f Ris

ks a

nd D

iscl

osur

eR

epor

t of I

ndep

ende

nt A

udito

ran

d Fi

nanc

ial S

tate

men

tsSu

rvey

of t

he Ir

ania

n Ec

onom

y

Row

Beneficiary

Relationship

Maj

or lo

ans a

nd c

omm

itmen

tsC

olla

tera

lB

oard

's r

esol

utio

n

Loa

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ts


Disbursement date

Total

Typ

eV

alue

No.

Dat

e

PL (1)

NPL (2)

Gross

Net before applying

coefficient

Coefficient

Net (3)

5=1+2+3+4

53

Cus

tom

er

100

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20

15/1

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10

0,00

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indi

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ct a

nd p

rope

rty32

0,00

013

92/2

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1392

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4

54

100

,000

20

16/0

2/01

10

0,00

0C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty32

0,00

013

92/2

/72

1392

/9/2

4

55

100

,000

20

16/0

2/01

100,

000

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

320,

000

1392

/2/7

213

92/9

/24

56

6,08

22,

919

50%

1,46

020

15/1

0/17

1,46

0C

ertifi

ed c

heck

9,42

613

94/2

/67

1394

/03/

24

57

100

,000

20

15/1

2/16

100,

000

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

270,

000

1393

/2/1

1413

93/0

5/13

58

50,

000

2015

/12/

1950

,000

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

135,

000

1393

/2/1

1413

93/0

5/13

59

50,

000

2016

/03/

1450

,000

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

135,

000

1393

/2/1

1413

93/0

5/13

60

23,

644

2015

/10/

29

23,6

44C

heck

s53

,200

1394

/2/1

2813

94/0

5/26

61

25,

443

2015

/11/

1625

,443

Che

cks

57,2

4713

94/2

/128

1394

/05/

26

Sub

tota

l 54

9,08

7-

6,08

22,

919

1,46

0-

550,

547

1,61

9,87

2

62

40,

000

2016

/01/

16

40,0

00C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty11

6,00

013

93/1

4313

93/0

6/01

63

5,0

00

2016

/01/

24

5,00

0C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty14

,500

1393

/143

1393

/06/

01

64

50,

000

2016

/02/

2250

,000

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

145,

000

1393

/143

1393

/06/

01

65

50,

000

2016

/02/

22

50,0

00C

heck

s and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd p

rope

rty14

5,00

013

93/1

4313

93/0

6/01

66

50,

000

2016

/02/

2250

,000

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

145,

000

1393

/143

1393

/06/

03

67

40,

000

2016

/02/

2740

,000

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

116,

000

1393

/143

1393

/06/

03

68

30,

000

2016

/03/

0630

,000

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

and

pro

perty

87,0

0013

93/1

4313

93/0

6/03

69

35,

000

2016

/01/

10

35,0

00C

heck

s and

Sta

nd-a

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lega

lly b

indi

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ontra

ct a

nd p

rope

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93/1

4313

93/0

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70

50,

000

2015

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30

50,0

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s and

Sta

nd-a

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indi

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7,00

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93/1

4413

93/0

6/03

71

75,

000

2016

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24

75,0

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Sta

nd-a

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indi

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5,50

013

93/1

4413

93/0

6/03

72

22,

160

2016

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22

22,1

60C

heck

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Sta

nd-a

lone

lega

lly b

indi

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ct a

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1393

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1393

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03

73

5,6

19

2016

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27

5,61

9Pr

oper

ty, c

heck

s and

Sta

nd-a

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lega

lly b

indi

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15,3

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92/4

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92/1

1/07

74

30,

555

2016

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06

30,5

55Pr

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ty, c

heck

s and

Sta

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indi

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83,7

2113

93/1

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Mid

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Eas

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k (P

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the

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cial

stat

emen

tsFo

r th

e ye

ar e

nded

19

Mar

. 201

6

Con

tinue

d on

nex

t pag

e


Beneficiary

RelationshipM

ajor

loan

s and

com

mitm

ents

Col

late

ral

Boa

rd's

res

olut

ion

Loa

nsC

omm

itmen

ts


Disbursement date

Total

Typ

eV

alue

No.

Dat

e

PL (1)

NPL (2)

Gross

Net before applying

coefficient

Coefficient

Net (3)

5=1+2+3+4

75

16,

665

2016

/03/

1216

,665

Prop

erty

, che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

s45

,663

1393

/144

1393

/06/

03

76

3,65

33,

288

50%

1,64

420

16/0

1/04

1,64

4C

ertifi

ed c

heck

5,66

213

93/1

4413

93/0

6/03

77

2,64

82,

383

50%

1,19

120

16/0

1/04

1,19

1C

ertifi

ed c

heck

4,10

413

93/1

4413

93/0

6/03

78

2,69

42,

425

50%

1,21

220

16/0

1/04

1,21

2C

ertifi

ed c

heck

4,17

613

93/1

4413

93/0

6/03

79

2,85

72,

571

50%

1,28

620

16/0

1/06

1,28

6C

ertifi

ed c

heck

4,42

913

93/1

4413

93/0

6/03

80

2,85

72,

571

50%

1,28

620

16/0

1/06

1,28

6C

ertifi

ed c

heck

4,42

913

93/1

4413

93/0

6/03

812,

857

2,57

150

%1,

286

2016

/01/

061,

286

Cer

tified

che

ck4,

429

1393

/144

1393

/06/

03

Sub

tota

l 50

0,00

0-

17,5

6615

,810

7,90

5-

507,

905

-

1,44

5,22

7

83

Cus

tom

er

77,0

0020

16/0

3/17

77,0

00C

ertifi

ed c

heck

and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct22

0,00

013

93/2

/25

1392

/07/

21

8410

0,00

01,

790

2015

/12/

2010

1,79

0C

ertifi

ed c

heck

and

Sta

nd-a

lone

lega

lly b

indi

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ontra

ct22

0,00

013

94/2

/68

1394

/03/

27

855,

326

4,26

150

%2,

131

2016

/02/

062,

131

Cer

tified

che

ck8,

256

1394

/2/6

813

94/0

3/27

8612

,411

9,92

950

%4,

964

2016

/02/

064,

964

Cer

tified

che

ck19

,237

1394

/2/6

813

94/0

3/27

8773

,673

2015

/12/

1473

,673

Che

cks a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

272,

589

1394

/2/2

6613

94/0

9/23

8810

2,96

020

16/0

1/20

102,

960

Cer

tified

che

ck a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

226,

512

1394

/2/2

6613

94/0

9/23

891,

815

2016

/02/

171,

815

Cer

tified

che

ck a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

3,99

213

94/2

/266

1394

/09/

23

909,

941

2016

/02/

209,

941

Cer

tified

che

ck a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

21,8

7013

94/2

/266

1394

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23

911,

412

1,13

050

%56

520

15/0

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565

Cer

tified

che

ck2,

189

1394

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6613

94/0

9/23

9246

236

950

%18

520

15/1

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185

Cer

tified

che

ck71

513

94/2

/266

1394

/09/

23

932,

718

2,17

450

%1,

087

2015

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141,

087

Cer

tified

che

ck4,

213

1394

/2/2

6613

94/0

9/23

941,

002

801

50%

401

2015

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2440

1C

ertifi

ed c

heck

1,55

313

94/2

/266

1394

/09/

23

9559

047

250

%23

620

16/0

2/03

236

Cer

tified

che

ck91

413

94/2

/266

1394

/09/

23

9619

,608

15,6

8650

%7,

843

2016

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287,

843

Cer

tified

che

ck30

,392

1394

/2/2

6613

94/0

9/23

9710

0,00

020

16/0

1/27

100,

000

Cer

tified

che

ck a

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tand

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ne le

gally

bin

ding

con

tract

220,

000

1393

/2/8

1393

/02/

01

9810

0,00

020

16/0

3/14

100,

000

Cer

tified

che

ck a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

220,

000

1393

/2/8

1393

/02/

01

9920

,000

2016

/02/

1420

,000

Cer

tified

che

ck a

nd S

tand

-alo

ne le

gally

bin

ding

con

tract

44,0

0013

93/2

/155

1393

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17

Mid

dle

Eas

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k (P

JSC

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on

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stat

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r th

e ye

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nded

19

Mar

. 201

6

Con

tinue

d on

nex

t pag

e


Man

agem

ent R

epor

tR

evie

w o

f Ris

ks a

nd D

iscl

osur

eR

epor

t of I

ndep

ende

nt A

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ran

d Fi

nanc

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tate

men

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of t

he Ir

ania

n Ec

onom

y

Row

Beneficiary

Relationship

Maj

or lo

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nd c

omm

itmen

tsC

olla

tera

lB

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esol

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n

Loa

nsC

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ts


Disbursement date

Total

Typ

eV

alue

No.

Dat

e

PL (1)

NPL (2)

Gross

Net before applying

coefficient

Coefficient

Net (3)

5=1+2+3+4

Sub

tota

l 58

5,38

8-

43,5

2834

,822

17,4

111,

790

604,

590

1,51

6,43

2

99

Cus

tom

er

200,

000

2016

/02/

0620

0,00

0 S

tand

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gally

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ding

con

tract

and

che

cks a

nd p

rope

rty

691,

450

1392

/246

1392

/07/

08

100

300,

000

2016

/02/

0330

0,00

0 S

tand

-alo

ne le

gally

bin

ding

con

tract

and

che

cks

810,

000

1392

/311

1392

/08/

20

101

70,0

0020

16/0

2/03

70,0

00 S

tand

-alo

ne le

gally

bin

ding

con

tract

and

che

ck

154,

000

1394

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0913

94/1

1/13

Sub

tota

l 57

0,00

0-

--

--

570,

000

1,65

5,45

0

102

Cus

tom

er

300,

000

2016

/03/

1630

0,00

0 S

tand

-alo

ne le

gally

bin

ding

con

tract

and

che

cks

750,

000

1394

/2/3

7813

94/1

2/17

103

160,

000

2016

/03/

1716

0,00

0 S

tand

-alo

ne le

gally

bin

ding

con

tract

and

che

cks

400,

000

1394

/2/3

7813

94/1

2/17

103

6,77

06,

093

20%

1,21

920

13/0

3/12

1,21

9 C

heck

and

pro

mis

sory

not

e 14

,120

1391

/114

1391

/12/

14

104

984,

115

885,

211

50%

442,

605

2016

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1744

2,60

5 c

heck

s 1,

722,

201

1393

/2/3

4813

93/1

2/25

Sub

tota

l 46

0,00

0-

990,

885

891,

303

443,

824

-90

3,82

42,

886,

321

105

Cus

tom

er

55,0

0020

16/0

1/19

55,0

00 S

tand

-alo

ne le

gally

bin

ding

con

tract

and

cer

tified

che

ck a

nd

prop

erty

16

9,01

513

93/2

/170

1393

/06/

26

106

297,

000

2016

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0329

7,00

0 S

tand

-alo

ne le

gally

bin

ding

con

tract

and

cer

tified

che

ck a

nd

prop

erty

91

2,68

113

93/2

/170

1393

/06/

26

107

110,

000

2016

/03/

0111

0,00

0 S

tand

-alo

ne le

gally

bin

ding

con

tract

and

cer

tified

che

ck a

nd

prop

erty

33

8,03

013

93/2

/170

1393

/06/

26

108

55,0

0020

16/0

3/06

55,0

00 S

tand

-alo

ne le

gally

bin

ding

con

tract

and

cer

tified

che

ck a

nd

prop

erty

16

9,01

513

93/2

/170

1393

/06/

26

109

55,0

0020

16/0

3/06

55,0

00 S

tand

-alo

ne le

gally

bin

ding

con

tract

and

cer

tified

che

ck a

nd

prop

erty

16

9,01

513

93/2

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1393

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26

110

40,0

0036

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20%

7,20

020

15/0

5/04

7,20

0 C

heck

and

pro

mis

sory

not

e 83

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1393

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7013

93/6

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111

60,0

0057

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20%

11,4

0020

16/0

3/08

11,4

00 C

heck

and

pro

mis

sory

not

e an

d de

posi

t 13

1,40

013

94/2

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1394

/05/

2711

274

,000

2016

/02/

0474

,000

Che

ck a

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tand

-alo

ne le

gally

bin

ding

con

tract

16

2,80

013

94/2

/330

1394

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20

113

30,0

0020

16/0

2/21

30,0

00 C

heck

and

Sta

nd-a

lone

lega

lly b

indi

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ontra

ct

66,0

0013

94/2

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1394

/11/

20

114

80,0

0020

16/0

2/21

80,0

00 C

heck

and

Sta

nd-a

lone

lega

lly b

indi

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ontra

ct

176,

000

1394

/2/3

3013

94/1

1/20

115

20,0

0020

16/0

2/28

20,0

00C

heck

and

Sta

nd-a

lone

lega

lly b

indi

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ontra

ct44

,000

1394

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3013

94/1

1/20

116

45,0

0020

16/0

3/05

45,0

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heck

and

Sta

nd-a

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1394

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94/1

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Mid

dle

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nded

19

Mar

. 201

6

Con

tinue

d on

nex

t pag

e


Beneficiary

Relationship

Maj

or lo

ans a

nd c

omm

itmen

tsC

olla

tera

lB

oard

's r

esol

utio

n

Loa

nsC

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ts


Disbursement date

Total

Typ

eV

alue

No.

Dat

ePL (1)

NPL (2)

Gross

Net before applying

coefficient

Coefficient

Net (3)

5=1+2+3+4

Sub

tota

l 82

1,00

0-

100,

000

93,0

0018

,600

-83

9,60

02,

520,

156

117

Cus

tom

er

50,0

0020

16/0

3/01

50,0

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and-

alon

e le

gally

bin

ding

con

tract

and

che

cks

170,

000

1393

/2/1

4313

93/0

6/02

118

200,

000

2016

/03/

0720

0,00

0St

and-

alon

e le

gally

bin

ding

con

tract

and

che

cks

680,

000

1394

/2/1

4713

94/0

6/16

119

200,

000

2016

/03/

0820

0,00

0St

and-

alon

e le

gally

bin

ding

con

tract

and

che

cks

680,

000

1394

/2/1

4713

94/0

6/16

120

100,

000

2016

/03/

0810

0,00

0St

and-

alon

e le

gally

bin

ding

con

tract

and

che

cks

340,

000

1394

/2/1

4713

94/0

6/16

Sub

tota

l 55

0,00

0-

--

--

550,

000

1,87

0,00

0

121

Cus

tom

er

250,

000

2015

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1725

0,00

0C

heck

and

Sta

nd-a

lone

lega

lly b

indi

ng c

ontra

ct a

nd st

ocks

1,05

0,00

013

93/1

1913

93/0

6/05

122

250,

000

2015

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1725

0,00

0C

heck

and

Sta

nd-a

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lega

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indi

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1,05

0,00

013

93/1

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93/0

6/05

Sub

tota

l 50

0,00

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500,

000

2,10

0,00

0

123

Cus

tom

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121,

299

2015

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2812

1,29

9C

heck

and

Sta

nd-a

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lega

lly b

indi

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ontra

ct26

6,85

913

93/2

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1393

/09/

04

124

100,

000

2015

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0410

0,00

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heck

and

Sta

nd-a

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lega

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indi

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ct22

0,00

013

93/2

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1393

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04

125

100,

000

2015

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0410

0,00

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heck

and

Sta

nd-a

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lega

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indi

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ct22

0,00

013

93/2

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1393

/09/

04

126

22,0

0520

15/0

8/04

22,0

05C

heck

and

Sta

nd-a

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lega

lly b

indi

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ct48

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1393

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2413

93/0

9/04

127

20,1

4820

15/0

8/05

20,1

48C

heck

and

Sta

nd-a

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lega

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indi

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ct44

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1393

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2413

93/0

9/04

128

5,53

320

15/0

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5,53

3C

heck

and

Sta

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indi

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ct12

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1393

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2413

93/0

9/04

129

42,2

7120

15/0

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42,2

71C

heck

and

Sta

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lega

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indi

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ct92

,996

1393

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2413

93/0

9/04

130

12,5

0020

15/0

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and

Sta

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lega

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indi

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ct27

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1393

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2413

93/0

9/04

131

12,5

0020

15/0

8/12

12,5

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heck

and

Sta

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lega

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indi

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ct27

,500

1393

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2413

93/0

9/04

132

11,5

0020

15/0

8/16

11,5

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heck

and

Sta

nd-a

lone

lega

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indi

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ct25

,300

1393

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2413

93/0

9/04

133

11,5

0020

15/0

8/16

11,5

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heck

and

Sta

nd-a

lone

lega

lly b

indi

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ct25

,300

1393

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2413

93/0

9/04

134

6,50

020

15/0

8/24

6,50

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heck

and

Sta

nd-a

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lega

lly b

indi

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ct14

,300

1393

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2413

93/0

9/04

135

7,35

220

15/0

8/27

7,35

2C

heck

and

Sta

nd-a

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lega

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6

Middle E

ast Bank, A

nnual Report For the Year E

nded March 19, 2016

2016

Annual Report

For the Year Ended

March 19, 2016

Middle East Bank HeadquartersNo. 2, 5th St., Ahmad Qasir (Bokharest) Ave., Tehran, IranTel: (+98 21) 42178000 Fax: (+98 21) 88701095www.middleeastbank.ir [email protected]

annual report - middle east bank · 2017-01-02 · middle east bank, annual report for the year...

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